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Testimonials

Advantages & Disadvantages of Franchising

 

  • Advantages 

  • Disadvantages 

Advantages

Quick Start

Franchising offers franchisees the main advantage of starting up a new business quickly. This is based on the fact that you are buying into an established network with an established name and established systems to guide you, as opposed to having to build a new business and brand from scratch. A well run franchise would offer a turn key business: from site selection to lease negotiation, training, mentoring and ongoing support as well as statutory requirements and troubleshooting.

Owning your own business

The franchise system allows franchisees the benefits of owning your own business with the natural benefits that self ownership entails.

Economies of Scale

 Franchising relies on the principle that there is strength in numbers. Being part of a larger group allows you to benefit from a strong brand and economies of scale, meaning that you will get better deals because of the bulk buying power of the collective.

 Expansion

 After their brand and formula are carefully designed and properly executed, franchisors are able to expand rapidly across countries and continents, and can earn profits equal with their contribution to those societies. Additionally, the franchisor may choose to leverage the franchisee to build a distribution network.

 Training

 Franchisors often offer franchisees significant training, which is not available for free to individuals starting up their own business. Franchisee can rely on the specialised knowledge and experience of the franchisors while maintaining their independence as a business owner. For some consumers, having franchises offer a consistent product or service which makes life easier. They know what to expect when entering a franchised establishment.

Intellectual property

As a franchisee you have the advantage of using a recognised brand or business system as the franchisor will assign their rights to patents, trade marks, copyrights, trade secrets, formulas and processes. Quinn lawyers can assist in preparation and protection of your intellectual property

 Territory

 A franchisor will generally define a territory of operation which has the advantage of protecting a franchisee from competition especially in lucrative retail type franchises.

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Disadvantages

Control

For franchisees, the main disadvantage of franchising is a loss of control. You will have a contractual obligation to follow the system, procedures, trademarks, assistance, training, and marketing, laid down by the franchising organisation, even if you discover you disagree with these systems, you are required to follow the system and get approval for changes from the franchisor. For these reasons, franchisees and franchisors are very different. Expansion and greater market penetration is in everyone’s best interest therefore franchisors are generally encouraging to any franchisee who is able to demonstrate a more practical or more efficient means of obtaining the above objectives.

Price

The set up costs are often high. Because of standards set by the franchisor, the franchisee often has no choice as to signage, shop fitting, uniforms, etc., and may not be allowed to source less expensive alternatives. Added to that is the franchise fee and ongoing royalties and advertising contributions. The franchisee may also be contractually bound to spend money on upgrading or alterations, as demanded by the franchisor from time to time.

Locations

In response to the soaring popularity of franchising, an increasing number of communities are taking steps to limit these chain businesses and reduce displacement of independent businesses through limits on “formula businesses”. If you run into any planning or local government opposition in regard to locating your franchise Quinn lawyers has experience in assisting with the negotiations.

Conflicts

Another problem is that the franchisor/franchisee relationship can easily cause conflict if either side is incompetent (or not acting in good faith). For example, your business could be affected by the performance of the other franchise owners, operating under the same brand, if they damage the public’s goodwill towards the franchisor’s brand by providing inferior goods and services. Also an incompetent franchisor can destroy its franchisees by failing to promote the brand properly or by squeezing them too aggressively for profits. Franchisors are required to inform franchisees on alternative dispute resolution processors. This is a informal and inexpensive process for solving problems between the parties. If you have any disputes with your franchise partners Quinn lawyers can assist you with alternative dispute resolution services.

Limitations

Generally franchise contracts will limit the ability of the franchisee to sell assign or transfer the franchise business to another party without the approval of the franchisor. Although these types of situations can be resolved amicably between the parties, there are often fees charged by the franchisors for agreeing to these changes. This is a result of the franchisor, who carefully vetted the original application having to go through the process again to make sure any new franchisee will accept and is suitable to participate in the franchise system. Quinn legal can assist you in any assignment or sale of your franchise business.

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If you’d like more information or if you would like to discuss whether buying a franchising suits you. Please complete and submit the Express Enquiry form on the top right hand side of this page and we will contact you to discuss your enquiry or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment.