There are ups and downs to franchising, laid out below are some of the pros and cons of using franchising to expand your business.
Access to better talent
People that buy into a franchise are often the most qualified and hardest working, as they are working to protect their investment, rather than to collect a salary as an employee.
Easy expansion capital
Franchisees pay to buy outlets in your chain, so growth and expansion happens without tapping into your own capital or needing to request financing from funders.
Minimal growth risk
Franchising can generate high financial returns for relatively little risk as you put relatively little money into adding each new location. If you have a good business model, you can earn high royalties from sales at those outlets. The percentage returns you earn can be many times what you would have earned had you opened and ran the outlets yourself.
Less control over managers
Unfortunately, once a franchise has been bought, it becomes an independent business. It is a good idea to establish goals for the outlet between you and the franchisee before selling.
A weaker core community
Franchisees can often not work that well together as they have an incentive to profit from each other’s efforts to generate business. For example, a franchisee may try to get out of paying for advertising because other franchisees are doing it, and customers will come to them anyway.
It is a lot harder to innovate with franchising. With franchising, if you come up with a new idea, you have to negotiate with your franchisees to get them to accept the new product or innovation that you want to introduce, which can kill an idea at the formation stage.