Q&A - Should a business use franchising as part of its growth strategy?
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Why is growing a business using a franchise system so popular, particularly in the service sector? Franchising provides a way to grow a business nationwide or internationally without having to invest in staff or premises. There are several pros and cons for this growth strategy:
Advantages to the franchisor
- The franchisor still controls key aspects of the brand and operation
- Less finance required to expand - the franchisee provides most of the capital needed
- Don’t have to find staff to run the operation
- The franchisees provide the entrepreneurial effort and energy required to make each location succeed
- Better able to expand into multiple locations quickly
- Business benefits from several sources of profit from the franchisee, including royalty payments and franchise fees
Disadvantages for the franchisor
- There is inevitably some loss of control - the franchisee runs his/her business on a day-to-day basis
- Fewer people want to run their own franchise rather than be an employed manager - are their enough good quality franchisees around?
- The franchisees may be located too close to each other - they end up competing against each other
- May be harder to get operational problems resolved quickly
- The franchisee decides how fast he/she grows the franchise once it has been awarded
- The franchisee takes a proportion of the profits earned by the franchise!
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