If you started one business and were successful with it, you may be feeling the urge to expand and keep things going. On the other hand, you may want to keep your current business running smoothly while starting another company and running both simultaneously. However, before you decide to expand your current business or start another one, you may want to take a minute to consider if franchising would be an appropriate strategy for growing your operations.
Every decision that a business owner makes is critical and holds a tremendous amount of weight. The right choices can greatly benefit a company’s operations, and the wrong ones can be the difference between keeping the doors open or having them close. Franchising is a decision that will be the perfect fit for some companies but not so much for others. As with any business move, there are pros and cons to consider.
Comparing the Benefits and Risks of Franchising Your Business
In the world of franchise businesses, there are two main parties. The first is the Franchisor, and this is the actual business and brand that is offered to entrepreneurs. The franchisor sets the tone for the business, establishes protocols and guidelines, and offers support to individuals who buy the business and use the brand.
The franchisee is the second party. The franchisee is the individual that buys into a particular business and brand. When a person who wants to run a business chooses a franchise, they do not have to start from scratch. They will be purchasing an established business, and while they will have to put their own capital into the business and follow the rules of the brand, they are still business owners who manage a company.
So what are the pros of franchising?
- Providing a way for a company to grow in number and expand its reach with capital that comes from the franchisee.
- The Franchise Disclosure Document guides all franchises and allows for legal protections for both the franchisor and franchisee.
- In addition to paying for an established business’s new location and development, franchisees often also pay a start-up fee. This money can help the franchisor secure capital to invest in the business and better support it.
- Greater ability for negotiating better contract terms as more franchised business locations grow and the need for supplies and services increases.
- A successful franchise business has the potential to be sold at any time and yield a solid return on investment.
Then there are the cons of franchising.
- Initially, for a successful franchise business that potential franchisees want to purchase, there is usually going to need to be a sizeable investment into branding, marketing, and operations required by the franchisor.
- Not all franchisees will comply with brand protocols, and this could mean that in some locations, there may be some chaos and loss of control experienced.
- Franchisors should have an experienced legal team helping them ensure they abide by rules and regulations.
- Extensive time is needed for developing a strong brand and keeping it competitive. Also, much time must be devoted to supporting franchisees.
Speak with an Attorney at Leiva Law Firm Today
There are risks and benefits to any business venture, including franchise businesses. To avoid potential liabilities, it is best to have the assistance of sound legal counsel. The Leiva Law Firm offers entrepreneurs an experienced Los Angeles business attorney, Marlene Leiva. Please call today to schedule a free consultation at (818) 519-4465.