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MyOwnBusiness Institute

The Pros & Cons of Becoming a Franchiser

Phill Holland, founder of MOBI, explains the benefits and drawbacks of becoming a franchiser, noting the advantage of being removed from problems like worker's compensation insurance, and also the disadvantage of having a lack of control in some business operations. 

If you're thinking about becoming a franchiser of your business I have some good news and some bad news for you. First of all, the good news is impressive. The dollars needed to expand your business will no longer be coming from you but instead will be coming from your franchisees, who will be supplying the capital to open stores, including rent deposits, equipment, and fixtures. This will allow you to expand much more rapidly, as well as geographically. As a franchiser, you will be relieved of a great number of employee related problems. The workers in the stores will be on the payrolls of the franchisees, so you will not be involved in many employee related issues including workman's compensation insurance. The employees and management running the stores will no longer be on your payroll but will be on the payroll of your franchisees. Another benefit of franchising is that your franchisees will be highly motivated, as well as economically driven to become successful. On your part, success as a franchiser will depend on providing a great business concept, an outstanding training program, great care in site selection, as well as taking great care in the selection of qualifying your franchisees. But the disadvantages of franchising also need to be considered. You will be dealing with franchisees who probably have their life savings at stake and if they become dissatisfied, where their franchise unprofitable, you'll be facing lawsuits. On the average, franchisers who have as little as five percent of their franchisees in litigation is usually a signal that the franchise is not successful nor would be successful in the future. Another risk in franchising is losing absolute control over the operation of the stores. Instead, you will be sharing earnings with your franchisee partners, which will require intensive ongoing training, control, and supervision. Finally, it will be necessary that your business concept is sufficiently enduring with sufficient earning power to generate enough profits, both for you and your franchisees. So you have lots to think about when considering franchising for your business.