Advantages and Disadvantages of Being a Franchisor

So, business is going well – so well in fact that you are thinking about expanding. This is a major accomplishment, as a majority of new businesses fail, and a great indicator that you have done a great job up until this point.

One option you should definitely consider when looking to expand is franchising. Franchising provides a dynamic business model which provides you with advantages you may not otherwise gain unless you partner up with others who are interested in working with your brand.

These advantages include:

Other People’s Money
OPM is a major asset and one that successful business people look to utilize. When a prospective franchisee wants to manage a new franchise location for you, they will invest their own money to start that business. Your brand expands, and you earn royalties and other fees while spending little or no money to fund the new endeavor.

Your Franchisees Will Be Very Motivated
Often times it is difficult to find managers and employees who are properly motivated, but that's not typically the case with franchisees. Franchisees are similar to any other business owner in that they spend their own money to get the business started. As such, they clearly have a vested interest in the success of that business. It is therefore highly probable that they will be ambitious and eager to do what it takes to make that franchise location a lucrative one. And when that happens, the royalties climb directly up to you, the franchisor.

Diversified Revenue Stream
When you lease your brand out to franchisees, not only are you expanding without spending your own money, but you are also setting yourself up to profit from additional forms of revenue. These include royalties and other fees, as well as monthly contributions to marketing funds and other campaigns which benefit the franchise as a whole.

Becoming a franchisor affords you the opportunity to take on a much larger clientele just as efficiently as you were from a single location. It is an incredible thing to be able to grow along with your market without altering business practices or losing anything in the way of efficiency or effectiveness.

Pretty young woman making a decision with arrows and question mark above her head

Of course, there could not be pros without a few cons. Below are some potential disadvantages you should be aware of should you consider franchising your business. For instance:

Compromising a Degree of Control
Much of this depends on the intricacies of the contract between franchisor and franchisee, but no matter how you slice it, franchisees are understandably going to have a certain degree of control over their franchise location. And, of course they would. It’s the only thing that would make sense, as with that level of responsibility and after having spent that much money, some authority is certainly in order. But this “disadvantage” can work to a franchisor's advantage if he or she is willing to compromise with franchisees, as it becomes a mutually beneficial partnership.

Potential for Legal Complications
Regardless of how good everyone’s intentions are, there are times where disagreements are simply unavoidable. As both franchisors and franchisees have rights, things can become rather complicated when disagreements arise between these two parties. If they cannot settle things among themselves, they may end up spending a lot of time and money in legal disputes.

What are some great things that happened to you when you began franchising your business? Let us know in the comments!

Want to know what the advantages are of being a franchisee? Find out here.