Franchising is a popular way of doing business in
which an individual or company can purchase and operate a proven business
model, this avoiding the risk of starting something that is completely new and
uncertain.
One of the main reasons why people buy franchises is
the reduced risk. Most small businesses fail, and the main reason for that
failure is ‘’weak management’’ (1). A franchised business addresses that issue
by ‘’leasing that managerial know-how’’ (1) to those who purchase the
franchise.
Another reason why I would buy a franchise is because
it allows small businesses to enjoy some of the benefits that only big
companies would have otherwise. Some of these are: reduced price for supplies
since they are bought for the whole chain in bulk, instant recognition from
customers because of standardized products and service in all locations, and
chain-wide marketing campaigns.
The downside of purchasing a franchise is the lack of
freedom to direct the business, ongoing royalty payments that depend on sales
rather than profit, and non-competition rules outlined in the franchise
contract.
One thing to point out here is that there are some
kinds of businesses that are so similar one to another that can one could think
that they offer some of the benefits of a franchise, without the rules and
limitations of a franchise. An example of this are Chinese restaurants. When I
go to a Chinese buffet I know what to expect from the beginning, their food is
almost the same and they even look very similar one to each other. The key here
worth considering is that they don’t have a proven successful managerial
method, so a new business owner would have to create one from scratch, which
implies more risk.
Would I ever consider owning a franchise? Yes; I would
do it despite all the limitations that owning a franchise might entail.
1.
Lee Ann Obringer. “How Franchising Works’’. Taken from
http://money.howstuffworks.com/franchising2.htm