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Franchising: Advantages and Disadvantages
It may not be appropriate to underestimate the challenges associated with initiating and running small business entities. As a matter of fact, there are several small-scale businesses that often fail even when the economic climate is favorable (Dant, 2008). In a nutshell, there are a number of substantial hurdles and benefits that small businesses undergo in the course of their operations.
Advantages of franchising
One of the merits of franchising is that most franchisees record impressive profits especially when managed effectively. It is also prudent to mention that both the capital and earnings can be boosted at the same time due to the available opportunities. Decision making is expedited because the owner can make direct follow-ups on all occurrences at the business. A number of financial institutions also readily support good franchising and therefore, capital can be easily secured from several financial entities (Michael, 2000).
An additional source of income is created through franchising. Hence, a franchisor can easily benefit from the venture. Some of the sources of income derived from franchising include sourcing private label goods, royalties and levies as well as franchise fees payments. An improved cash flow is provided through capital injection. As a result, the given business portfolio may eventually enjoy higher profits and return on investments. In addition, reduced cost of advertising and operation expenses is enjoyed by a franchisor. Moreover, research and development can be carried out more swiftly due to the additional cash inflow.
A small central organization can be developed by the franchisor. Consequently, business procedures are uniformed across the board due to the presence of a central system of organizing operations. Besides, a central operation platform enhances improved delivery of high quality products and the quantity of production. In other words, quality can be effectively controlled by the franchisor.
From a franchisees perspective, the trial and error durations that are usually associated with establishing and running a business are completely avoided. A franchisee also faces minimal financial risks unlike other business opportunities. The proven business concept can be safely run by a franchisee because the past performance records have already been practically put into test (Michael, 2000).
Disadvantages of franchising
In spite of the above benefits of franchising, there are also key challenges that may hamper the operations of this type of business. First, it may be cumbersome to guarantee the profitability of a business entity that depends on the input of two different parties. There are also other hidden vagaries in the marketplace that may impede the profitability of franchising. The franchise infrastructure demands considerable capital allocation so that it can be successful especially on the part of the franchisor. Moreover, pilot operation equally requires additional overhead costs that must be availed. Support should be offered to franchisees alongside the recruitment and training programs when the franchise program is being started. Worse still, misfits can also spoil the trade name when the franchise program is initiated. The franchise can only be secure when the most suitable candidates are selected.
Undue pressure can be exerted by franchisees especially when they urgently need to introduce some changes into the business. Eventually, franchisees may access confidential information if the franchisor is compelled to release them.
Whether sport-related businesses need to franchise
From the above discussion, it can be concluded that many sports-related businesses need to franchise. For example, continuous moral and financial support is required by such businesses so that they can perform well. Furthermore, a confirmed or established business format is prudent for sports-related ventures owing to limited time to form such businesses. The high rate of competition in the sporting field also demands excellent franchising opportunities (Hisrich, Peters & Shepherd, 2013).
References
Dant, R. P. (2008). A futuristic research agenda for the field of franchising. Journal of Small Business Management, 46(1), 91-98.
Hisrich, R.D., Peters, M.P. & Shepherd, D.A. (2013). Entrepreneurship. Boston, MA: McGraw-Hill Irwin.
Michael, S. C. (2000). Investments to create bargaining power: The case of franchising. Strategic Management Journal, 21(4), 497.
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