What is a franchise? What are the major advantages and disadvantages of owning a franchise business?
What will be an ideal response?
A franchise is a method of doing business whereby the business (the franchisor) sells a company's products or services under the company's name to independent third-party operators (the franchisees).
Advantages:
1 ) Proven system of operation. Instead of dealing with all the uncertainties of new business ownership by themselves, franchisees benefit from the collective experience of the franchise company.
2 ) Strength in numbers. Because as a franchisee you belong to a group, you might benefit from economies of scale achieved by purchasing materials, supplies, and services at discounted group rates. It can be easier to get approved for business loans when running a franchise.
3 ) Training. The franchisor offers initial training to ensure you have a successful opening and might offer ongoing training if new products or services are added to the franchise line.
4 ) Marketing support. Franchisees are often given marketing materials generated at the corporate level and have the benefit of any national advertising programs that are created.
Disadvantages:
1 ) Lack of control. Little opportunity to contribute creatively to the franchise since the franchisor often controls the look of the store and the product or service.
2 ) Start-up and ongoing costs. Many franchises require more than $50,000 to start. Also, franchisees must pay a monthly royalty fee to the franchisor, regardless of how the business is doing.
3 ) Work load. New franchisees should expect to spend a significant amount of their time running the business.
4 ) Competition. Some franchises do not restrict the location or number of their franchise locations, so franchisees could experience competition from other franchisees in the same franchise organization.
5 ) Share common problems. If the franchisor or another franchisee is having problems, all franchisees will feel its pain. When a Wendy's restaurant was falsely accused of serving chili with a human thumb mixed in, business in all Wendy's restaurants plummeted.
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