What are the Pro’s and Con’s of Franchising?
The Pro’s of Franchising
Buying into a proven turn-key operation
The advantage of buying a turn-key business with an established brand and tried and tested operational procedures is probably the most important advantage to investing in a franchise.
Reduction of risk
Whilst it is not an absolute given, the very fact that only 20% of franchises fail compared to the standard norm of 80% of independent businesses, it is safe to say that buying into a franchise system is less risky as you are buying into an established concept with proven operating standards.
Start-up assistant
From the moment you sign on the dotted line, the franchisor will take you under his wing and provide all the necessary set- up support – from site selection to fitting and stocking up the store as well as training and marketing support.
On-going support
On-going support in all aspects of operations will be given based on group bench-marking and sound business principles. This is usually linked to operations, quality control and marketing and appropriate feedback is given to improve all-round performance in accordance with group norms.
Group Benefits
The benefit of belonging to a family of franchisees is extensive – from getting preferential financing through the strength of the brand to benefiting from bulk buying; from enjoying the fruits of new product innovation to reaping the results of pooled marketing resources.
Being part of an established brand
As an independent business, you would never be able to benefit from the knock-on effect of being aligned to a well-known brand. The benefits of joint advertising maximizes brand awareness and increases the profile of each and every franchisee in the group.
The Con’s of Franchising
High cost of the franchise
The cost of buying into a franchise is relatively high to setting up an independent business as there are no short-cuts – you need to follow the franchisor’s blueprint and that means adhering to certain minimum standards of furnishings, fittings and equipment.
Ongoing royalty or management fees
For the right to use the intellectual property and in order to benefit from the on-going operational and marketing support, you will need to factor in a percentage of your turnover being paid over to the franchisor on a monthly basis.
Rigid Operating Procedures
In order to maintain conformity of brand and the replication of the proven formula you will need to run the business according to the strict rules of the Operations Manual which will become your ‘bible’ on how to operate the business.
Loss of Freedom
Since the franchisor’s standards have to be followed stringently with no room for individual initiative, the loss of control and freedom to do things your way could be seen as a disadvantage.
Sale Restrictions
Where an independent operator is free to sell his business whenever he wants and to whomever he chooses, in franchising, the sale of a franchisee’ s business is always subject to the approval by the franchisor of the suitability of the purchaser of your business.
Bad franchise operator
Although it doesn’t happen very often, there is the risk that the franchisor, through bad judgement, greed or mis-reading of the market, mismanages the franchise and this could impact on the franchisees who are then left high and dry.
To protect, lobby, promote and develop ethical franchising across all sectors in South Africa with specific focus on transformation.
