Franchising, Organizational Architecture, and Corporate Culture

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Managerial Economics and Organizational Architecture

Why Franchising?

Franchising is an attractive option for those wanting to start their own business. Purchasing a well know franchise gives the back up of a well-known brand. However, franchising has both good and bad sides.
Pros:
1. There are a variety of businesses ranging from multi-million dollar operations to part-time business. There is something for everyone and for every budget.
2. It is one of the safest ways of starting a new business. There is a high success rate provided a good franchise is chosen in the first place.
3. A good franchise will offer you a proven business format with initial and continuing support. Franchisors often have field support staff to help franchisees.
4. The business will be operated under an already-established brand that has been developed and proven in the marketplace and the franchisor continues to research market demands so you don't have to.
5. Franchising gives you the opportunity to build a profitable business that can be resold, if you choose to.
6. You don't have to come up with the business idea - someone already has and tested it so you don't have to make any expensive mistakes. You may even receive a comprehensive operations manual and training program as part of the franchise agreement.
7. The franchisor has a marketing, sales and advertising strategy to promote the franchise network so you benefit from a holistic approach. You benefit from network buying power so your costs are less, plus you have greater access to franchising because banks look favorably on the franchise sector.
Cons:
1. Initial and continuing fees - New franchisees may be charged a lump sum to start. Many franchisors insist you purchase their materials from your own pocket. Franchisors will take a regular slice of your takings as royalty fees.
2. You may need to have a certain amount of working capital before you are even considered a suitable candidate.
3. Once the fixed-term contract is up, you may have to pay another fee to extend the time you can trade under the company's name. Even though the fees may be comparable to starting on your own, you still need to deal with all the normal overheads that a business generates. It can add up to a fairly large amount.
4. You do things their way - not yours - you may feel your entrepreneurial creativity is restricted. You may get frustrated if your plans are hampered by company policy on what you can and can't do. The penalties for falling out of line with the franchisor's wishes can be harsh.
5. Other people's decisions can since your franchise - even if your run a profitable outlet, you could still lose everything if your franchisor makes a bad business decision and the firm fails. One bad franchise could ruin the bad name of the company, dragging down your profits as well as your reputation.
6. Hard work is inevitable. Working weeks of 60 hours or more may be required. Implementing the working practices of your franchisor and improving on them is a massive task and one that takes dedication and a lot of support from family and friends.
Factors to Consider Before Deciding on Buying a Business

It is very important to investigate all aspects of a business before committing to purchase it. The financial statements are ...