Advantages and Disadvantages of Franchising

Topics: Franchising, International Franchise Association Pages: 3 (756 words) Published: June 10, 2008
Contents
1 Definition of Franchising
2 Businesses for which franchising works best
3 Advantages
4 Disadvantages

Definition of Franchising
Franchising refers to the method of practicing and using another persons philosophy of business. The "franchisor" authorizes the proven methods and trademarks of his business to the "franchisee" for a fee and a percentage of gross monthly sales. Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the franchisor. Agreements typically last five to twenty years, with premature cancellations or terminations of most contracts bearing serious consequences for franchisees.

Businesses for which franchising works best
Businesses for which franchises is said to works best have the following characteristics: Businesses with a good track record of profitability.
Businesses built around a unique or unusual concept.
Businesses with broad geographic appeal.
Businesses which are relatively easy to operate.
Businesses which are relatively inexpensive to operate.
Businesses which are easily duplicated.

Advantages
Quick start
As practiced in retailing, franchising offers franchisees the advantage of starting up a new business quickly based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch (often in the face of aggressive competition from franchise operators). A well run franchise would offer a turnkey business: from site selection to lease negotiation, training, mentoring and ongoing support as well as statutory requirements and troubleshooting

Expansion
After their brand and formula are carefully designed and properly executed, franchisors are able to expand rapidly across countries and continents, and can earn profits commensurate with their contribution to those societies. Additionally, the franchisor may choose to leverage the franchisee to...

Bibliography: Letter, SBA Office of Advocacy, to Donald S. Clark, Secretary, The Federal Trade Commission, Re: 16 CFR Part 436, dated April 10, 1997
Steinberg, Paul and Lescatre, Gerald. Beguiling Heresy: Regulating the Franchise Relationship, Penn State Law Review, The Dickinson School of Law, Pennsylvania State University, Volume 109, 2004, Number 1, page 211.
Steinberg, Paul and Lescatre, Gerald. Beguiling Heresy: Regulating the Franchise Relationship, Penn State Law Review, Dickinson School of Law, Pennsylvania State University, Volume 109, (2004), Number 1, page 107.
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