Franchising is a type of business that we encounter most often everywhere. When a new business becomes highly developed, the franchise opportunities for other small businesses are very wide open, so that the business will indirectly grow and progress more easily. Before discussing the franchise or franchise further, let’s understand the meaning of franchising first. The definition of a franchise or franchise is a type of license obtained from a particular party as a franchisee to enable them to have access to trade knowledge, processes and brands owned by the franchisor or parent company, which then allows the party to sell the product or services in the business conducted.
In other words, this franchise business will provide a great opportunity for us to be able to buy existing business models and achieve the same business success in accordance with a proven track record.
Actually, where did this franchise come from? This franchise business is actually very popular in the North American country. In 2019, there are around 4,000 business brands working in franchises throughout the United States. A year ago namely, in 2018, there were already around 758,000 franchise companies employing nearly 7.88 million people in the United States.
Wow, there are a lot of them too! It is true that many people assume that franchising not only benefits the franchisor because he will get rewarded as an annual licensing fee from the franchisees, but indirectly the franchise has opened many job opportunities to
people around us.
Some examples of franchises or examples of franchises in Indonesia are usually covered by fast food restaurants. In addition, this fast food restaurant usually originates from the United States as the first country where franchises develop, which then enters into a franchise in Indonesia. The good news is that there are already many fast food restaurants, food products, beverage franchises or local brand services as a result of the nation’s children who have successfully become very well-known Indonesian franchises. This has made the 2020 franchise list in Indonesia even more increasing.
Now, for Career Advice colleagues who are interested in further understanding the topic of franchising, fellow readers do not need to read franchise papers or franchise material that is so long, but their fellow readers simply simply read this article to the end and understand the topic of franchising more deeply . Come on, continue reading until it runs out.
Although many people who praise the advantages of a franchise business, unfortunately we must return to the reality that everything in this world must have advantages and disadvantages. When you want to start a business , many people think that buying a franchise business is the safest path. Unfortunately, this is not always true, colleagues. Therefore, it is important for us to understand the pros and cons of owning a franchise business itself. The goal is that we can ensure that the decisions we make are the best for our current financial situation.
According to the balance smb dot com website, there are some pros and cons that will make us understand about the advantages and disadvantages of franchising that we will get. Let us consider the following explanation.
Pros and Cons of a Franchise Business
As we said before that many people who praise this franchise business. So, would it be better if we discussed about the reasons why people become pro of this franchise business.
1. Franchising Offers a Low Failure Rate.
Every time a new business develops rapidly, surely the business will become the center of attention for other business people or entrepreneurs. This is not only the center of attention, but they will find out whether the business can become a franchise business, so they can build a similar business by giving an annual licensing fee to the franchisor or parent company.
Franchise business is often taken from businesses that are already growing and popular before, so even business people are not afraid to build a franchise. In other words, franchising offers a low failure rate for business people who want to run a franchise, because this type of business has proven its success. In addition, based on widely distributed statistical data, franchises have a much higher chance of success compared to new, independently-built businesses.
2. Franchising Gives Market Strength from the Parent Company.
Without having to bother thinking about market strategies to attract the attention of buyers and customers, people who do franchise business will benefit from the collective purchasing power that comes from the parent company or the main company that initiated the business earlier. Whether we realize it or not, the parent company will provide exceptional market power to its franchisees. Thus, those of us who run a franchise business will be more helped to follow the track record of success that the parent company has.
3. Franchises will provide profitable business assistance.
Being a franchisor is not only running a business that has a low level of loss, but franchisees will also get valuable assistance for their business for all time. For example, when we run a franchise business, we will get the equipment, supplies and important instructions needed to start our business . Eits, not only that, colleagues. Often we will get ongoing training held by the parent company. In addition, when the parent company makes large-scale marketing at the national level, of course we will also reap the benefits of that marketing. That way, our customers will increase from day to day.
4. Franchising will make our business more popular faster.
Without having to struggle to build a business that is popular in the eyes of the community, a franchise business has given us this opportunity from the start. In other words, owning a franchise is like buying a business with a loyal customer bonus that is included in the business package.
5. Higher Profits and Get Quicker.
The last advantage of a franchise is the return on investment or what we commonly call Return on Investment (ROI), which will happen very quickly and in high amounts if we really focus on the franchise business that we apply. If the benefits are more secure, who will not be interested in building a franchise business?
Now after listening to some of the benefits that we will get from the franchise business, now we invite fellow Career Advice to listen to any losses or shortcomings that we will get from the franchise. Some of the points below are the cons of franchising. Curious? Let’s look at the following points.
1. Overly Binding Rules and Guidelines.
Behind the various advantages, franchising also presents some disadvantages that we need to think about. The first and foremost disadvantage of franchising is that we must comply with all rules and guidelines provided by the parent company. In fact, some owners of parent companies can give excessive control over our franchises.
It is true that everything is back to the franchise agreement that occurred between us and the existing parent company owner. However, for entrepreneurs who are independent (stand alone) and want to be free in their business, of course this will burden and torture them.
The owner of the parent company may determine several requirements, such as operating time, product price, room layout, even the selected furniture must be in accordance with what the owner of the parent company wants. The existence of these rules and guidelines is solely to maintain uniformity in the existing franchise business. So, if your fellow readers aren’t sure or don’t like to be organized like this, try to think again about your plans for building a franchise.
2. Capital Costs are quite expensive.
The higher the return on investment (ROI) we expect, the more expensive the capital we need to provide. Logically, a franchise business that is already very popular will certainly put up a more expensive franchise price. So, if your fellow readers really want to build a franchise that has been popular before, get ready to spend a lot of money for a high profit return.
In addition to the main franchise fees that must be paid, it turns out there is also a percentage of royalties from the franchise business revenue that we must pay to the franchisor every month. In fact, if there are advertising costs that we must pay, we must also be willing to spend money for it.
4. Support from Unclear Parent Companies.
Unfortunately, not all parent company owners offer ongoing support to the followers of the franchise. Some parent companies will only free us without providing any support and direction. If the case is like this, it’s the same as us building our own business from the beginning, right?
5. Franchising also Has Risk!
No type of business will avoid risk, whether small or large. Examples of risks that we can get are when our business capital is not too much, then we choose a franchise with a brand (brand) that is less well known, the risk of slow return on investment (ROI) can happen to us. In essence, not all franchises can provide benefits that come quickly with a high amount.
As for listening to the pros and cons of the franchise business above, there are 10 considerations that we need to think about before making a decision in buying a franchise business. What do you think about these considerations? Come on, consider the following explanation.
10 Considerations before Buying a Franchise Business
Franchise business carried out with good consideration and mature will be a very profitable opportunity for the implementer. However, if the franchise is not accompanied by good judgment, then this type of business will only invite risks and losses in our lives.
1. Are You Ready to Run All Franchise Procedures?
There are so many great entrepreneurs and business people who are good at running a business, but are they confident and able to carry out all the existing franchise procedures? Some of the procedures that we need to go through are obtaining investment to finance franchise capital, negotiating rental terms in the franchise, choosing an area or finding the right location, looking for a reliable contractor to complete the construction of a business place on time and on budget, and so forth. Not all business people can and are able to do complicated things like that. So, make sure before we decide to build a franchise, we really want and can do it all.
2. Can you follow the existing system?
When we have decided and bought a franchise business, that means we have bought a whole system. This is logical because we did not build a business from scratch independently, but we are running a franchise system that has existed from before. So, have we been able to follow and implement all the franchise systems that the owner of the parent company has established?
3. Must Be Careful in Maintaining Company Image and Brand Awareness.
As explained in the previous point, running a franchise means following all existing franchise systems. Not only that, we must also be careful in maintaining the company’s image and brand awareness (brand) that has been formed from the products and services of the parent company. For example, XYZ brand fresh coffee drinks are already very famous for its robust coffee aroma and very slick presentation. If we intend to open a franchise from XYZ coffee shops, then we must maintain all the good impression attached to these coffee products. If we don’t take care of it properly, then this will backfire for us because customers will leave our franchises or hate products from the parent company.
4. Are We Sure We Can Use Business Capital Wisely?
Usually, banks or investment lenders will be far more trustworthy and comfortable to finance the purchase of a franchise business, compared to a business that is established independently. Moreover, if the franchise chosen does indeed have a proven track record of success and is still very popular today. Now, these plus points should still be taken into consideration for us, because we need to be absolutely sure to use the loaned business capital as well as possible and prove a quick and profitable return on investment.
5. Are You Ready to Receive Other Supports?
Franchising with a good parent company owner will put us in a good position. We will receive a lot of additional support given on an ongoing basis. For example, when we face a problem when running a franchise business, we can just ask for help from the parent company or other franchise entrepreneurs (of course, still in the same parent company). Even established parent companies can send their staff to your franchise location to provide training and consultation if necessary. In reality, there are still many entrepreneurs who want to face their business problems alone, without the help of other parties. So the question is, are you ready to receive these supports? Try to reconsider!
6. Are You Ready to Follow the Pathways of Business Success that already existed before?
Franchises do have a higher chance of success than other types of businesses. However, are we ready to follow the same path of success? Some business people feel much more comfortable creating a path of success from their own bright ideas and innovations, rather than following what they already have. So, are you ready to follow all the paths of success that have been provided?
7. Undergoing every training held by the holding company.
Training becomes one of the most important elements in the world of franchising, because it aims to maintain the uniformity of the franchise itself. Therefore, the parent company will hold several training programs on a regular basis which are usually held at their headquarters. Now, are your fellow readers ready to undergo all the training provided?
8. Do you want to follow the determined marketing template?
Franchising also usually requires us to spend a certain amount of money for marketing that is done locally. Often the parent company has an outline or guidelines that we must follow, especially in the marketing material template. So, try asking yourself before starting a franchise, do I want to follow a predetermined marketing template?
9. Exclusive Territory in the Franchise.
In a franchise business, usually we will also buy an exclusive area where the area has been protected to establish a business under the parent company that we choose. In the context of this exclusive area, franchises may only be opened in a certain number in a certain geographical area. Therefore, usually we will get the right to establish a franchise in certain areas that may not be established by other franchise businesses. The question is, are your fellow readers ready with an exclusive area that may have been determined by the parent entrepreneur? Or fellow readers feel more like an independent business that can be established wherever the location?
10. Expanding the Franchise System.
If fellow readers have had success in establishing a franchise, another opportunity will be wide open for fellow readers, namely, having the opportunity to establish a franchise in another location. This means that fellow readers must get ready to set aside franchise capital for other branches and prepare everything needed.
That is the meaning of franchising, the pros and cons of franchising, and the 10 things we need to consider before actually deciding to own a franchise business. After reading this article, are your fellow readers more convinced to start a franchise business? If you are already sure and getting excited, we congratulate you on starting, Career Advice colleagues.