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Advantages, Challenges of Franchising

News Media Contacts:
Terry Hill or Amy Bannon, 202-628-8000

 

WASHINGTON D.C., March 13,2006 - International Franchise Association Editor’s Resource papers provide story ideas about the sector in which hundreds of thousands of franchised businesses operate. Franchising plays a vital role in the nation’s economy, according to a study conducted for the IFA Educational Foundation by PricewaterhouseCoopers. The “Economic Impact of Franchised Businesses” study found that the franchising sector generates one-out-of-every-seven jobs in the U.S. and contributes more than $1.5 trillion to the economy each year.

 

Advantage #1 - The Experience of the Franchisor

When an individual buys a franchise, he or she purchases the years of experience and the proven operating system of the franchisor. One franchisee expressed it this way, “What I have learned from the franchisor was worth ten times what I paid for the franchise.” In any new business, much time and money are spent in trial and error, but a proven franchise may eliminate many of those start-up problems, allowing one to open a franchise with little or no previous experience in a given industry.

 

Advantage #2 - Training

A good franchisor will provide training for new franchisees. This is usually done at the home office and at the franchisee’s place of business. Training should prepare new owners for all facets of the business.

 

Advantage #3 - Buying and Advertising

Most small-business owners cannot afford to inventory products in bulk or do extensive advertising. The franchisee buys this advantage when he or she buys the right to use the franchisor’s purchasing power and advertising – most franchisors provide advertising help and direction. Furthermore, as the number of franchisees increases, so does public awareness of the franchise, which can be a tremendous advertising advantage. Franchisees located near one another can also advertise together, reducing costs.

 

Advantage #4 - Ongoing Advice, Research
and Development

Franchisees need help throughout the term of their business endeavors and the franchisor’s staff can give this needed help in all aspects of the business. The franchisor can also provide ongoing research and development so that new products and services will be made available to franchisees.

 

Advantage #5 - Business Synergy

The word “synergy” refers to the idea that the sum of the whole is greater than the separate parts. This principle can be applied to franchising. Those who buy a franchise become part of a “family” where all members work together for the good of the whole. Often, some of the most effective ideas come from franchisees who in turn share their ideas with the corporate office and with other franchisees.

 

 

Challenge #1 - Working Within the System

People who have difficulty following directions or who dislike working within a system will find franchising extremely frustrating. Conformity to the franchisor’s operations manual is critical if consistency among franchises is to be maintained. However, there are areas such as marketing where a franchisee can be creative.

 

Challenge #2 - The Risk

As with starting any small business, there is always risk. Because the franchisee owns the business, he or she, to a great extent, determines the success of the venture. The franchisor may have a great program and a respected name, but in the final analysis much of the risk is in the franchisee’s hands.

 

Challenge #3 - Working With the Franchisor

Buying a franchise can be closely compared to entering into a marriage. Both are legally binding relationships that last for a long time. The franchisee’s relationship with the franchisor will be extremely important. Franchisees should get to know the franchisor by visiting corporate headquarters, talking to other franchisees, and reading as much about the franchise as possible.

 

Challenge #4 - False Expectations

Some people buy a franchise expecting instant success, perhaps because they see how well other franchisees have done. But that accomplishment did not come without great effort. Franchising, like any other business, requires tremendous time, initiative and industry. Prospective franchisees should ask the franchisor to be realistic when explaining what is required to operate the business.

 

Challenge #5 - Managing the Business

Some individuals are more prepared to manage a business than others. They have some business experience and have learned to get along well with people. Others may find that managing a franchise is a burden. Prospective franchisees must honestly assess their ability to run a business. If they find they have little or no experience, they can seek special help from the franchisor in business management.

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