There are many forms of business options available to business people. A person may choose an option based on its relative advantages and disadvantages over other existing forms of business. Examples of forms of business are being an independent Entrepreneur and Franchising. Franchising is one of the majorly used forms of business which dates back to the 19th Century in America. The form of business was formed basically to help American business owners establish an efficient distribution channel (Webber,2013). The concept has since spread to other parts of the world. Among the World’s top franchises McDonald’s, 7-Eleven Inc., The UPS Store, Dunkin’ Donuts and Dairy Queen among others. Franchising involves a Franchise, Franchisor and a franchisee. Franchising is a continuous relationship between a franchisor and a franchisee in which the franchisor provides the franchisee licensed privileges to do business and offers training, assistance and products in exchange for money. It, therefore, involves the willingness of the franchisor to grant rights of usage of his brand to the franchisee. The agreement by both parties to enter into an agreement that is mutually beneficial and legally binding and the willingness of the franchisee to pay fees and other considerations for the privileges obtained through the agreement (S,2009). On the hand, entrepreneurship is the ability and willingness to start and manage a business venture along with any risks that might come with it to obtain profit. This report seeks to analyse the advantages and disadvantages of being a franchisee, differences between a franchisee and an independent entrepreneur, personal attributes, things that might go wrong when buying a franchise, legal, financial challenges and obligations and anticipated future developments in the industry.
It is expected that there will be many advantages and disadvantages of selling my Business The Raw Kitchen Freemantle and Becoming a franchisee
Advantages
Reduced Risk of Business failure
The risk is a concept a business owner is wary of especially when starting up new ventures. Business risks can significantly affect the operations of the business. One of the main advantages of joining a franchise is the fact that there are minimal risks involved (Webber, 2013). Unlike a business owner who operates with much uncertainty working under a franchise presents an opportunity for the franchisee to work with a brand that has already been established, already tested over duration of time and whose commercial value is already known. This means that there is increased security (Alon, 2008).
Ease of financing
Working under an established brand also allows the franchisee to access credit facilities from big corporations when a need arises. While establishing an independent might lead to publicity related issues for a business owner, working under a franchise makes it possible for the franchisee to enjoy the fruits of an already established brand which leads to saving of money and resources that would have been used in building a new brand (Adams, Hickey & Jones,2006).
Ongoing Support
Apart from granting the franchisee an opportunity to work with them, the franchisor is also tasked with the responsibility of availing training programs and first-hand support. It is also the franchisor’s role to help a franchisee to attract and retain customers. A franchisor may also help a franchisee in control systems for increased efficiency in operations. Unlike being a business owner, a franchisee can also be helped with initial starting capital marketing and advertisements as well as equipment such as machines and vehicles. Although the kind of support provided may vary, the basic principle is that unlike individual business owners, franchisees do not have the option of suffering alone (Clifton, 2008).
Defined territory
This is viewed as the main attraction to franchising. The location for starting a franchise outlet is carefully chosen, to increase revenue and prevent trading on each other’s toes. This is unlike normal business which lacks defined territories hence increased chances of unhealthy competition. The ease of acquiring trading premises in places such as shopping canters with high populations is also high unlike for an individual business owner (Spencer, 2010).
Established Operating Model
Franchises already have established operating models in place, unlike business owners who are required to create their operating models. Working under an established model enables a franchisee to hit the ground running immediately unlike for an individual business owner (Webber, 2013).
No need of prior experience
Unlike for a start up businesses, there is no prior business experience required to run a franchise. This is well taken care of by the franchisor through training and support on how to use their business model
Disadvantages
Lack of autonomy
Unlike being a business owner, working as a franchisee presents the challenge of working without the discretion of making own decisions on how to run your business. Each franchise has its model of operation on which training is provided by the franchisor. This, therefore, means that each franchisee is required to operate as per the policy set by the franchisor which hampers their creativity. There are also penalties for deviating from the policies set by the franchisor (Sugars, 2007).
Initial and continuing fees
Joining a franchise also requires a franchisee to part with lump sum amounts of money charged for using an already established brand name. The amount charged can vary from franchisor to another. A franchisee is also required to pay royalty fees from their profits and in events where there is a tight profit margin, the fee is charged from their turnover. This is unlike owning a business where you are not required to pay such fees (Webber,2013).
Requires franchisee to be on their toes
Although there is some degree of support from the franchisor, so much hard work is required from the franchisee to run a successful franchise. A franchisee might be required to work approximately 6o hrs a week to get their business off the ground. Running a franchise, therefore, requires so much dedication and requires the franchisee to be always on their toes (SPinelli, Rosenberg & Birley, 2014).
Franchisor’s decision could lead to failure of business
While a business owner runs their business using their own decision, a franchisee is required to work under the decisions made by the franchisor. This, therefore, means that even if a franchisee runs a successful outlet, it might end up collapsing as a result of poor decisions made by the franchisor because the franchisee lacks control over the decisions running their franchise outlet (Webber, 2013).
Numerous differences exist between franchisees and independent entrepreneurs. The major differences exist in how the two work as well as the level of control over the ventures that they run.
Limited Creativity License
Working as a franchise requires one to operate in an environment with limited creativity. Being a franchisee therefore unlike being an independent entrepreneur means that one is limited in the creative decisions they can make. While an Entrepreneur can make as many creative decisions as possible, a franchisee is required to work with the decision made by the franchisor (Webber,2013).
Incurring more expenses
Working as a franchisee means more costs as compared to working as an entrepreneur. While both require an initial capital; a franchisee is required to pay a buy-in fee on top of that for them to be allowed to use the franchisor’s brand and product. Working as franchisee also requires payment of franchise fee for each period agreed upon. So unlike an entrepreneur who enjoys all the profit alone, a franchisee is expected to offer a chunk of their profits to the Franchisor. This means that the franchisee is beholden to the franchisor in as long as the enterprise is running, unlike an entrepreneur who is beholden to nobody (Verbieren, Cools and Abbeele 2008)
Nurturing and support
Unlike entrepreneurs who are known to be fighters, working as a franchisee means that you will require constant and support and training from the Franchisor to successfully run a franchise outlet. On the other hand, Entrepreneurs work on their own without requiring any nurturing or constant support from anyone (Abell, 2013).
Working under supervision
Working as a franchisee means that you will be under constant supervision of the Franchisor to ensure that there is adherence to the Franchise model. A franchisee is not for example allowed to add any new products or rebrand the products (Webber, 2013). On the other hand, an entrepreneur establishes and follows their own rules and is required to be answerable to anybody.
Personal Characteristics, Abilities, Resources And Preferences
Personal characteristics
Commitment
Goal orientation
Passion
Creativity
Superb Business skills
Decisiveness
Vision
Risk-taking
Good listening skills
Persuasiveness
Integrity
Abilities
Ability to lead by example
Ability to sacrifice time for others
Ability to work for long hours
Ability to work under pressure
Ability to outperform challenges
Ability to Innovate
Personal resources
Time
I have unlimited time enough to actualize any venture that I would want to pursue
Money
I also have sufficient finances
Attention
I can focus and pay attention to details
Energy
I have enough energy to start and effectively manage an enterprise
Preferences
Autonomy
I prefer working with the ability to make own decisions and with minimal supervision.
Unrestricted creativity
I prefer working in an environment with no restriction to creativity
Freedom
I prefer having the freedom to choose a working schedule that I am comfortable with, the location that I want and freedom to decide what I think is best for my business.
Buying a franchise has both its advantages and disadvantages. Many things can go wrong when buying a franchise.
Failure to closely review the franchise agreement
A franchise agreement is a legal document governing the relationship between the franchisee and the franchisor and specifying the terms of purchase of a franchise. This makes it the most important document in this association. Sometimes franchisee may hurriedly make a final decision agreeing to the terms of the agreement without closely monitoring it (Webber, 2013).
Failure to review the Disclosure Document
Before buying a franchise, the franchisee is required to have as much information as possible about the franchisor for informed decision making. The disclosure Document presents an opportunity for the franchisee to review information about the franchisor concerning the agreements that the franchisee is required to sign, financial status of the franchisor and the franchise system (Davies, el al,2011) The Disclosure document also contains information about franchise’s staff, territory rights, required investment and purchases, responsibilities of a franchisor and the franchisee, initial and continuous fee required to run the franchise and Franchisors litigation and bankruptcy history successfully. Failure to review and understand this document well or disclosure of the wrong information might lead to future challenges for the franchisee (Larty, 2010.)
Legal challenges
Legal and financial matters are the most common reasons that may cause causes of failure of franchises.
Franchise agreement
A franchise agreement is the cornerstone of any successful franchise. It specifies the terms and relationships between the franchisor and the franchisee. Among the information included in a Franchise agreement is information about training, assistance and advertisements, termination or transfer of the franchise, duration of the franchise, territory, franchise system, rights and obligations of the franchisor and franchisee and payments made by the franchisee to the franchisor. The Agreement is legally building to both parties and therefore they must honor it(Webber,2013).
Contributing to the marketing fund
It is a requirement that the franchisor contributes to the marketing fund established by the franchisor to facilitate the creation of successful marketing strategy. These contributions are determined as a percentage of the gross sales and paid on an ongoing basis for the entire period of the franchise term. This can be a challenge in a situation where the franchisee makes loses and is the sum is deducted from their turnover (Kalnins, 2010)
Initial capital
It can be quite expensive to buy a franchise because of the initial capital involved. Sometimes, a franchisor may request a franchisee to commit over half of their total investment which might be quite challenging for an individual franchisee. They may also be required to spend money in buying their equipment and stock (Webber,2013).
Compliance with the franchise model
By buying a franchise, the franchisee is expected to uphold and carry on with the model established by the franchisor. This requires the franchisee to comply with franchise’s systems and procedures.
Purchase and supply Franchise’s products and services
The franchisee has the responsibility of supplying products and services to customers in their territory. Sometimes they may also be required to maintain minimum stock levels or purchase products to be sold from the franchisor (Lewis, 2009.)
Minimum performance criteria
Sometimes the franchisee may also be required to satisfy certain minimum performance criteria in the franchise agreement. It is, therefore, an ongoing obligation on the side of the franchisee to ensure that their performance is as per the agreement
Commercial and technical assistance
The franchisor has the obligation of providing commercial and technical assistance to the franchisee such as training and information sharing to facilitate effective operation of the franchise outlet.
Loyalty
The franchisor has the obligation of respecting the agreement between them and the franchisee and treating all franchisee equally.
Obligation to consult
The franchisor has an obligation of consulting franchisees’ opinions and advice on areas requiring expert advice as well as working closely with them.
Just like any other industry, the franchise is expected to have various changes as we enter into the future. For these changes, there will be an impact
Technological advancement
Technological incorporation into franchising is one of the anticipated future changes especially with the modern use of the internet. The expected outcomes of this development will be increased online food shopping and delivery options. These developments will require me to more conscientious and work towards incorporation of technology in my business (Dada, Watson and Kirby, 2012)
More Companies transforming to franchises
The future is also expected to see more companies embrace the franchise model in their operations to expand their operations across boarder business are also expected to use this model to expand into new territories and markets. This will make it mandatory for me to incorporate differentiation in my business in and maintain high quality of products to have a competitive advantage (Webber,2013).
Conclusion
In conclusion, there are numerous advantages and disadvantages of a being a franchisee as compared to being a business owner. Among the common benefits is the fact that franchisees have an ease of acquiring credit facilities by working with established brands, can immediately hit the ground running, have an opportunity to operate in their territory without interference, can acquire constant training and support franchisor and have a reduced risk of failure. On other hand franchisee operate under rules of the franchisor, are subjected to limited creativity, lack autonomy and are required to be always on their tools. Working as a franchisor also differs from working as an entrepreneur in that unlike entrepreneurship, it requires supervision has limited decision-making abilities and involves more expenses. Failure to scrutinize franchise agreement and disclosure document are some of the issues that could go wrong in as far as buying a franchise is concerned. Franchising also involves challenges, responsibilities for obligations for both the franchisor and the franchisee on which they are supposed to abide. After closely analysing the two options and considering my preferences of autonomy, working with minimal supervision and working in an environment with unrestricted creativity my decision will therefore be to decline the offer of selling my existing business The Raw Kitchen Fremantle and becoming a franchisee under Boost Juice Australia.
Reference list
Abell, M. (2013). The law and regulation of franchising in the EU. Cheltenham, UK, Edward Elgar.
Adams, J., Hickey, J. J. B., & Jones, K. V. P. (2006). Franchising: practice and precedents in business format franchising. Haywards Heath, West Sussex, Tottel Pub.
Alon, I. (2008). Service Franchising a Global Perspective. Boston, MA, Springer Science+Business Media, Inc. https://dx.doi.org/10.1007/0-387-28256-4.
Dada, O., Watson, A. and Kirby, D.A., 2012. Toward a model of franchisee entrepreneurship. International Small Business Journal, 30(5), pp.559-583.
Clifton, D. (2008). Franchising on a shoestring: making franchising work for you … without breaking the bank. London, A & C Black. https://public.eblib.com/choice/publicfullrecord.aspx?p=590987.
Davies, M.A., Lassar, W., Manolis, C., Prince, M. and Winsor, R.D., 2011.A model of trust and compliance in franchise relationships. Journal of Business Venturing, 26(3), pp.321-340.
Kalnins, A., 2010. Important Questions about Franchising: What We Know and What We Should Know.
Larty, J., 2010. Contribution of franchise research to entrepreneurship: a review and new opportunities.
Lewis, J.E., 2009. Business viability: a comparison between franchises and independent businesses (Doctoral dissertation, North-West University).
Massetti, R. (2007). Is your business right for franchising? Lulu.com.
S., C. (2009). Market Entry Options Franchising, Strategic Alliance, Acquisition. https://nbn-resolving.de/urn:nbn:de:101:1-201512032928.
SUGARS, B. J. (2007). Successful franchising. https://www.overdrive.com/search?q=786DD33C-2ABF-4A25-BDA9-BF5FF4571A81.
Spencer, E. C. (2010). The regulation of franchising in the new global economy. Cheltenham, UK, Edward Elgar.
SPinelli, S., Rosenberg, R., & Birley, S. (2014). Franchising: pathway to wealth creation. London, FT Prentice Hall.
Verbieren, S., Cools, M. and Van den Abbeele, A., 2008. Franchising: a literature review on management and control issues. Review of Business and Economics, 53(4), pp.398-443.
Webber, R. (2013). An introduction to franchising. Houndmills, Basingstoke, Palgrave Macmillan.
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