The Downside to Franchising Your Business
To many people the idea of franchising their business entity seems like a wonderful way to expand, however getting started on the road to establishing a successful franchise opportunity can be difficult. There are several key disadvantages to franchising your business that should be considered so that you are better prepared to make the right business decision:
Weakened Net Earnings
Only a few franchises break even immediately, in fact most franchises take six months to one year to move to the black. If you are relatively sure that company-owned outlets can produce immediate profit and you have the capital and manpower to staff them, you will certainly make much more money with company-owned outlets than if you were to franchise an equal amount of businesses that made the same amount of profit. Your main challenge will be to obtain the necessary start-up capital and find and hold onto qualified management and hard-working employees while hoping that sales will immediately surpass the substantial costs associated with starting up company-owned retail outlets.
Franchisee Freedom
Many franchisors seem to forget that their main focus and get caught up in the process of selling franchises. The number one goal of any franchisor is to sell his service or product and the employment of franchisees is how this goal is achieved. The key is to treat all franchisees fairly and with just enough control to ensure that your service or product is marketed to consumers with the same quality that made the parent business a success. It is imperative to find the right people who are dedicated to following what they are shown.
By the same token, it is vital that the franchisees not feel that you are overcharging them for services or that the services for which they are paying are not what was represented to them, otherwise they may become unhappy and join together to withhold payment of franchise fees. Take care to look at each franchisee as a smart, cost-effective substitute for a company manager, especially when assisting and supporting that franchisee.
Difference in Required Business Skills
The business skills you will need for operating a business franchise system are completely different from those required to run your original retail business. Most business people who fail in franchising are those who had no business sense for what they were doing in their original company-run business. Nobody is assured of becoming a top-notch franchisor simply because they had an incredible business idea and a brilliant business plan.
Overspending
Franchisors tend to get caught up easily in the glamour of high-rise office buildings, overstaffing, company cars, lavish hotels, elaborate trade show booths, and expensive advertising campaigns while generally undercapitalizing and not budgeting soundly. It doesn’t matter if your capital is $20,000, $100,000 or higher - carefully budgeting the cost of your office, the marketing of your franchises, the training of your franchises, and the maintenance and support of your franchise outlets is vital for market stability and continued success.
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