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What are the disadvantages of franchising a business?

As well as the advantages to franchising your business, disadvantages also exist:

  • Costs involved – you need to be realistic about the cost of establishing a franchise network against the time it will take for you to see a return on your investment and ask yourself if you can afford it.
  • Loss of control – Usually when you own it, you control it, but in franchising it is the franchisee that controls his/her unit and to a degree runs it their way. It's here when the operating manual comes into play, if the franchisee sticks to your systems then it's as if you are running the franchise unit yourself. Remember that each franchisee is a businessperson in their own right and so you do not have “hire and fire” rights over them . You do however need to monitor closely what the business is achieving and identify areas of poor performance. You need to have regular communication to make sure that the franchisee is doing things properly and sticking to your systems and procedures to meet their targets. A potential failure can have disastrous results for the network as a whole. You need to also protect your business from franchisees who may try and replicate the concept and steal customers/clients.
  • Finding the right franchisees – it can be tempting in the early stages to simply recruit those with the required investment to help get your franchise up and running. This can be fatal as the wrong franchisees can damage the foundations of your franchise and bring failure to the whole network. You need to therefore invest time and money in recruiting methods and how to identify franchisees who are highly motivated with the potential to be successful.
  • Managing growth – having a large franchise network can be a nice position to be in, but you need to make sure that you have the required support staff to serve the needs of your franchisees. It is therefore better to be over-staffed at times so that you can react to any problems that may arise from old and new franchisees, this may involve changing the culture of your organisation to one that is support-oriented. If they don't get the necessary support they may find it difficult to achieve their aims and your business could suffer.
  • Conflict between franchisee and franchisor – The biggest negatives in franchising are the conflicts between the franchisee and franchisor which as a worst-case scenario, but not uncommon, can lead to legal proceedings. When franchisees are making money they are happy, but if they are not then the blame usually lies at the door of the franchisor. Allegations, rightly or wrongly, include lack of support, inadequate training, territorial problems, misrepresentation and even fraud. Frequent communication, adequate support, thorough market research and a comprehensive operations manual can help combat this.
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Richard Holden, Lloyds TSB

Richard HoldenRichard Holden is Head of Franchising for Lloyds TSB. He has 23 years banking experience and has supported a wide range of businesses in the small business sector for many years.

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Bill Hendrie, The Franchising Centre

Bill Hendrie Bill has worked within the franchise sector since 1995 in both training and operational roles, including Franchise Director of one of the UK's largest independently owned recruitment companies. Bill's business ethos is to work with franchisors to maximise on all opportunities to successfully grow their businesses.

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Euan Fraser - AMO Consulting

Euan FraserEuan has acted for franchisors involved in a variety of business sectors including companies such as Debenhams, Thorntons and through to small family owned businesses. Euan is an active member of the British Franchise Association.

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