Franchising Advantages And Disadvantages

“Franchise the damn thing” – Ray Kroc.

Franchising means buying into an existing business and having the right to use an existing business idea.

Usually there is less risk when opening a franchise than starting up as an independent retailer because the business model has already been proven and the product is well known.

Advantages of Owning a Restaurant Franchise:

Instant Brand Recognition
Consumers know the brand and trust it so the new owner of a franchise will automatically gain a customer base. The franchisor would have taken the risk factor away from the

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franchisee. The customers will associate the brand with certain quality levels and know exactly what they’re getting before they buy it. Consistency is key to the customer.

This means a lot less preparatory work for the Franchisee.

Peace of mind
Franchisees will not have the very big risks as this will rest with the Franchisor. Franchisees are also entitled to any profits that they make but it works both ways as the Franchisor is not responsible for rescuing the Franchisee if the business is not a success.

Disadvantages of Owning a Restaurant Franchise

Limited Independence
Franchisees may feel that the business does not belong to them as they cannot make all their own decisions. They are bound by a contract where they have to follow all operating procedures and stick to the brand. They do not own the brand and will therefore have many restrictions regarding menu items, number of employees, suppliers, hours of business and advertising methods.

Cost to open a Franchise
Franchise operations are not cheap and owners will need enough capital to cover the costs including rent, building maintenance, kitchen equipment, insurance, uniforms, salaries, annual royalties and employee training.

Limited growth
How the business is grown with regards to expanding into new areas is limited and determined by the parent

It was Ray Kroc’s idea, to turn McDonald’s restaurant into a franchise that he put forward to the McDonald brothers. They were reluctant as they claimed that they had tried it before however, after much persuasion, they finally agreed to turn their business into a franchise and McDonald’s became the franchisor. This meant that they had the right to sell McDonald’s branded goods to individuals who wanted to set up their own McDonald’s business. The license agreement permitted McDonald’s (Franchisor) to demand that the franchisees follow operating methods and the quality of the