Disadvantage and Advantage of Business Franchising
Christopher Wen

Defined Tag: Business Franchise.

For franchisees, the main disadvantage of franchising is a loss of control. For these reasons, franchisees and entrepreneurs are very different. Because of standards set by the franchisor, the franchisee often has no choice to things such as signage, shop fitting, uniforms etc. Another main issue in this business relationship is that it can easily cause conflict if either side is incompetent or not acting in good faith.

Franchisors are required by the Federal Trade Commission to have a Uniform Franchise Offering Circular "UFOC" to disclose potential franchisees about their purchase. This disclosure must take place 10 business days prior to solicitation (franchisor agrees to offer the prospective franchisee a license). Because litigation is expensive, the majority of franchisors have inserted mandatory arbitration clauses into their agreements with their franchisees.

Business Franchise has its Advantage

As practiced in retailing, franchising offers franchisees the advantage of starting up a new business quickly based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch (often in the face of aggressive competition from franchise operators). A well run franchise would offer a turnkey business, from site selection to lease negotiation, training, mentoring and ongoing support as well as statutory requirements and troubleshooting. Franchisors often offer franchisees significant training, which is not available for free to individuals starting up their own business.

In recent years, the idea of franchising has been picked up by the social enterprise sector, which hopes to simplify and expedite the process of setting up new businesses. A number of business ideas, such as soap making, whole food retailing, aquarium maintenance, and hotel operation, have been identified as suitable for adoption by social firms employing disabled and disadvantaged people.

Christopher Wen is Owner of Small Business Knowledge Base, where he provides essential small business tips, guides, product reviews and tools for your business needs.