Franchisors determine the course of a franchise system – and can quickly achieve success. The job has many advantages, but also some disadvantages.
The Advantages Of The Franchisor
In a pure branch system, the founder has to raise significant financial resources to finance the expansion. On the other hand, as a franchisor, the entrepreneurial risk in the expansion of his system is comparatively small.
Low Capital Requirement
With its fees and investments, each individual franchise partner provides the basis for a strong expansion force of the entire system. Thus, the franchisor does not have to keep a lot of capital.
As a result, the system center has to use less equity capital and has to pay less interest on the debt. This accelerates the expansion.
The franchisor benefits directly from the franchisees’ experience, who, with their expertise and experience, are experts in the respective region.
This high level of commitment by the franchisees results primarily from the fact that they invested their own money in the company.
In addition, the franchisees are responsible for the site and therefore have the power to react quickly and precisely to customers’ wishes and the activities of competitors.
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All relevant information from the franchisees, for example, about new competitor activities, is continuously collected at the head office. The franchisor can mix the marketing activities properly and develop the system further.
Because market research is a very relevant tool for a company’s success in times of converging products and oversaturated markets, franchise companies have a great advantage over other types of companies.
A customer database with detailed profiles, in particular, is considered to be an extremely valuable treasure in times of big data.
The system headquarters can set the framework conditions for its franchise partners with little staff. On the one hand, this is due to the fact that, unlike employees, self-employed entrepreneurs are usually very motivated and enthusiastic.
Therefore, the system employees hardly have to worry about the questions of everyday business and can therefore focus on strategic tasks to bring the whole unit forward.
If the partner has personnel problems, the franchisor helps with tips but does not provide detailed and, therefore, expensive advice.
The Disadvantages Of The Franchisor
Selection Of Partners
In times of almost full employment, finding suitable partners is difficult. Although the systems have developed detailed selection procedures, mistakes still occur.
Unlike in a branch system, the separation of franchise partners is complicated; a simple contract termination is not that easy.
Possible Reputation Damage
The close interlinking of the franchise system, franchisor, and franchisee has a disadvantage: If even one franchise partner works poorly, this can damage the whole unit’s reputation.
Success has many fathers, as the saying goes. In the franchise, the franchisee claims economic success for himself because he is the one who fights on the front line and wins the customers.
Especially in economic upswing times, the franchise partner can find the control activities of the system disruptive. In this case, legal disputes are not uncommon, and the franchise relationship is also terminated. Smart franchisors can offer arbitration or mediation.
If you own the whole company, then all of the profit goes into your own pocket. However, with franchise systems, the franchisor only earns through the entry fees and the ongoing franchise fees.
There are a number of problems associated with terminating a franchise relationship. Not least in the interests of the employees, a fair balance must be found for the company’s future.
It is also necessary to clarify where the furnishings and goods will be taken. It must be clarified for the franchisor whether compensation claims exist. If an amicable solution is not found quickly, the conflict can run off onto the franchise system or other partners.