What are the Disadvantages of Franchising a Business?
Before franchising your business, it is important to understand the advantages and disadvantages about franchising your business. Here we cover some of the very important aspects for Business Franchising.
The Initial Costs Involved
You need to be realistic in assessing the cost of establishing a franchised network against the time it will take for you to see a return on your investment. Ask yourself:
- can I afford it?
- do I have the foresight and patience to wait for returns?
A Certain Degree of Loss of ControlUsually, when you own it, you control it! In franchising, this credo applies to a certain extent, but there are limits.
- The franchisee owns the business unit and will expect to have a say in the way it operates. It is here that the operations and procedures manual comes into play. As long as the franchisee adheres to the systems as set out in the manual, it will be almost as if you were to manage the franchise centrally.
- The franchisor needs to remember that each franchisee is a business owner in his or her own right and respect that. A franchisee cannot simply be fired, however, it is the franchisor’s responsibility to monitor the franchisee’s activities closely, identify areas of poor performance and insist that they are rectified.
- Close cooperation between franchisor and franchisees, supported by an excellent communications infrastructure, are essential.
- Franchisees need to operate in the interest of the brand, and meet monthly targets. Failure of just one franchisee can impact negatively on the network as a whole.
- The franchisor needs to protect the network from past franchisees who may try to replicate the concept for their own benefit, thereby taking business away from other members of the network.
Franchisee SelectionNew franchisors may be tempted to recruit franchisees on the basis of them being able to come up with the investment.
This is understandable, but it can have disastrous consequences for the network. Admitting the wrong people can damage the foundations of the network and eventually lead to its failure. The franchisor needs to develop a franchisee profile and invest time and money in recruiting the right people.
Having a large franchise network can be a nice position to be in, but the franchisor needs to put the necessary infrastructure in place to adequately serve the needs of the network’s franchisees. It is better for the division responsible for franchisee support to be over-staffed at times, as this makes it possible to react to any problems that may arise from old and new franchisees. Unless franchisees receive the necessary support, they may find it difficult to achieve their aims and the brand’s reputation could suffer. This requires a culture change. Quite simply, a successful franchise organisation needs to be support-oriented.
Conflicts between franchisees and the franchisor are the biggest negative in franchising. On occasion, this leads to legal proceedings, although this would be the worst-case scenario. When franchisees are making money, they are usually happy, if not, they blame the franchisor. They will make allegations along the lines of over-promising but under-delivering, lack of support, inadequate training, territorial problems, misrepresentation and even fraud. Even if these allegations are unjustified, once they have been made, trust tends to go out the window. Frequent communication, enthusiastic practical support, thorough market research and a comprehensive operations and procedures manual can help to prevent problems of this nature from arising.