Franchising Report: Advantages, Disadvantages, and Future Trends

This report, focusing on franchising, compares the experience of a franchisee with that of an independent business owner, using The Raw Kitchen Fremantle as a case study. It begins by exploring the historical background and key terminology of franchising. The report then investigates the advantages and disadvantages of franchising versus independent business ownership, examining risk reduction, financing, ongoing support, and defined territories. It contrasts the roles, including limited creativity, expenses, and supervision involved in franchising versus entrepreneurship. Furthermore, the report assesses personal characteristics, abilities, and preferences relevant to franchising and identifies potential pitfalls when purchasing a franchise. It addresses legal and financial challenges, obligations of both franchisors and franchisees, and concludes with an analysis of future industry developments and their potential impact.

Franchising
716FRAN
AQF Level 9
ASB
The Raw Kitchen Fremantle
Word count:3000
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Executive Summary
This Report explores the concept of becoming a franchisee as compared to becoming an
individual business owner or entrepreneur. It begins by introducing the franchising topic
through a historical background and defining major terminologies. The report then proceeds
to explore the potential benefits and shortcomings of becoming a franchisee as compared to
being a business owner to establish which option would b better between retaining an
individual business and purchasing a franchise. The report then explores the experience as a
franchisee as compared to being an entrepreneur, my attributes including characteristics,
abilities, resources, and preferences, Identifies the major issue that could arise when buying a
franchise and gives an analysis of financial and legal risks as well as obligations. The report
concludes with an overview of the expected future developments in the industry and their
impact on me
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Contents
Executive Summary..................................................................................................................2
1. INTRODUCTION................................................................................................................. 4
THE ADVANTAGES AND DISADVANTAGES AS A FRANCHISEE COMPARED TO
AN INDEPENDENT BUSINESS OWNER............................................................................5
Advantages...............................................................................................................................5
Disadvantages.......................................................................................................................7
WHAT IT MIGHT BE LIKE BEING A FRANCHISEE INSTEAD OF AN INDEPENDENT
ENTREPRENEUR...................................................................................................................8
PERSONAL CHARACTERISTICS, ABILITIES, RESOURCES AND PREFERENCES.....9
WHAT COULD GO WRONG WHEN BUYING A FRANCHISE.......................................11
LEGAL AND FINANCIAL CHALLENGES AND OBLIGATIONS...................................12
Legal challenges................................................................................................................. 13
Financial challenges........................................................................................................... 13
Obligations of the franchisee..............................................................................................14
Obligations of the franchisor.............................................................................................. 14
IMPACT OF FUTURE DEVELOPMENTS IN THE INDUSTRY OR BUSINESS ON ME15
CONCLUSION...................................................................................................................... 16
Reference list...................................................................................................................... 18
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1. INTRODUCTION
There are many forms of business options available to business people. A person may choose
an option based on its relative advantages and disadvantages over other existing forms of
business. Examples of forms of business are being an independent Entrepreneur and
Franchising. Franchising is one of the majorly used forms of business which dates back to the
19th Century in America. The form of business was formed basically to help American
business owners establish an efficient distribution channel (Webber,2013). The concept has
since spread to other parts of the world. Among the World’s top franchises McDonald’s, 7-
Eleven Inc., The UPS Store, Dunkin’ Donuts and Dairy Queen among others. Franchising
involves a Franchise, Franchisor and a franchisee. Franchising is a continuous relationship
between a franchisor and a franchisee in which the franchisor provides the franchisee
licensed privileges to do business and offers training, assistance and products in exchange for
money. It, therefore, involves the willingness of the franchisor to grant rights of usage of his
brand to the franchisee. The agreement by both parties to enter into an agreement that is
mutually beneficial and legally binding and the willingness of the franchisee to pay fees and
other considerations for the privileges obtained through the agreement (S,2009). On the
hand, entrepreneurship is the ability and willingness to start and manage a business venture
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along with any risks that might come with it to obtain profit. This report seeks to analyse the
advantages and disadvantages of being a franchisee, differences between a franchisee and an
independent entrepreneur, personal attributes, things that might go wrong when buying a
franchise, legal, financial challenges and obligations and anticipated future developments in
the industry.
THE ADVANTAGES AND DISADVANTAGES AS A FRANCHISEE COMPARED
TO AN INDEPENDENT BUSINESS OWNER
It is expected that there will be many advantages and disadvantages of selling my Business
The Raw Kitchen Freemantle and Becoming a franchisee
Advantages
Reduced Risk of Business failure
The risk is a concept a business owner is wary of especially when starting up new ventures.
Business risks can significantly affect the operations of the business. One of the main
advantages of joining a franchise is the fact that there are minimal risks involved (Webber,
2013). Unlike a business owner who operates with much uncertainty working under a
franchise presents an opportunity for the franchisee to work with a brand that has already
been established, already tested over duration of time and whose commercial value is already
known. This means that there is increased security (Alon, 2008).
Ease of financing
Working under an established brand also allows the franchisee to access credit facilities from
big corporations when a need arises. While establishing an independent might lead to
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publicity related issues for a business owner, working under a franchise makes it possible for
the franchisee to enjoy the fruits of an already established brand which leads to saving of
money and resources that would have been used in building a new brand (Adams, Hickey &
Jones,2006).
Ongoing Support
Apart from granting the franchisee an opportunity to work with them, the franchisor is also
tasked with the responsibility of availing training programs and first-hand support. It is also
the franchisor's role to help a franchisee to attract and retain customers. A franchisor may
also help a franchisee in control systems for increased efficiency in operations. Unlike being
a business owner, a franchisee can also be helped with initial starting capital marketing and
advertisements as well as equipment such as machines and vehicles. Although the kind of
support provided may vary, the basic principle is that unlike individual business owners,
franchisees do not have the option of suffering alone (Clifton, 2008).
Defined territory
This is viewed as the main attraction to franchising. The location for starting a franchise
outlet is carefully chosen, to increase revenue and prevent trading on each other’s toes. This
is unlike normal business which lacks defined territories hence increased chances of
unhealthy competition. The ease of acquiring trading premises in places such as shopping
canters with high populations is also high unlike for an individual business owner (Spencer,
2010).
Established Operating Model
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Franchises already have established operating models in place, unlike business owners who
are required to create their operating models. Working under an established model enables a
franchisee to hit the ground running immediately unlike for an individual business owner
(Webber, 2013).
No need of prior experience
Unlike for a start up businesses, there is no prior business experience required to run a
franchise. This is well taken care of by the franchisor through training and support on how to
use their business model
Disadvantages
Lack of autonomy
Unlike being a business owner, working as a franchisee presents the challenge of working
without the discretion of making own decisions on how to run your business. Each franchise
has its model of operation on which training is provided by the franchisor. This, therefore,
means that each franchisee is required to operate as per the policy set by the franchisor which
hampers their creativity. There are also penalties for deviating from the policies set by the
franchisor (Sugars, 2007).
Initial and continuing fees
Joining a franchise also requires a franchisee to part with lump sum amounts of money
charged for using an already established brand name. The amount charged can vary from
franchisor to another. A franchisee is also required to pay royalty fees from their profits and
in events where there is a tight profit margin, the fee is charged from their turnover. This is
unlike owning a business where you are not required to pay such fees (Webber,2013).
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Requires franchisee to be on their toes
Although there is some degree of support from the franchisor, so much hard work is required
from the franchisee to run a successful franchise. A franchisee might be required to work
approximately 6o hrs a week to get their business off the ground. Running a franchise,
therefore, requires so much dedication and requires the franchisee to be always on their toes
(SPinelli, Rosenberg & Birley, 2014).
Franchisor’s decision could lead to failure of business
While a business owner runs their business using their own decision, a franchisee is required
to work under the decisions made by the franchisor. This, therefore, means that even if a
franchisee runs a successful outlet, it might end up collapsing as a result of poor decisions
made by the franchisor because the franchisee lacks control over the decisions running their
franchise outlet (Webber, 2013).
WHAT IT MIGHT BE LIKE BEING A FRANCHISEE INSTEAD OF AN
INDEPENDENT ENTREPRENEUR
Numerous differences exist between franchisees and independent entrepreneurs. The major
differences exist in how the two work as well as the level of control over the ventures that
they run.
Limited Creativity License
Working as a franchise requires one to operate in an environment with limited creativity.
Being a franchisee therefore unlike being an independent entrepreneur means that one is
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limited in the creative decisions they can make. While an Entrepreneur can make as many
creative decisions as possible, a franchisee is required to work with the decision made by the
franchisor (Webber,2013).
Incurring more expenses
Working as a franchisee means more costs as compared to working as an entrepreneur. While
both require an initial capital; a franchisee is required to pay a buy-in fee on top of that for
them to be allowed to use the franchisor’s brand and product. Working as franchisee also
requires payment of franchise fee for each period agreed upon. So unlike an entrepreneur
who enjoys all the profit alone, a franchisee is expected to offer a chunk of their profits to the
Franchisor. This means that the franchisee is beholden to the franchisor in as long as the
enterprise is running, unlike an entrepreneur who is beholden to nobody (Verbieren, Cools
and Abbeele 2008)
Nurturing and support
Unlike entrepreneurs who are known to be fighters, working as a franchisee means that you
will require constant and support and training from the Franchisor to successfully run a
franchise outlet. On the other hand, Entrepreneurs work on their own without requiring any
nurturing or constant support from anyone (Abell, 2013).
Working under supervision
Working as a franchisee means that you will be under constant supervision of the Franchisor
to ensure that there is adherence to the Franchise model. A franchisee is not for example
allowed to add any new products or rebrand the products (Webber, 2013). On the other hand,
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an entrepreneur establishes and follows their own rules and is required to be answerable to
anybody.
PERSONAL CHARACTERISTICS, ABILITIES, RESOURCES AND
PREFERENCES
Personal characteristics
Commitment
Goal orientation
Passion
Creativity
Superb Business skills
Decisiveness
Vision
Risk-taking
Good listening skills
Persuasiveness
Integrity
Abilities
Ability to lead by example
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Ability to sacrifice time for others
Ability to work for long hours
Ability to work under pressure
Ability to outperform challenges
Ability to Innovate
Personal resources
Time
I have unlimited time enough to actualize any venture that I would want to pursue
Money
I also have sufficient finances
Attention
I can focus and pay attention to details
Energy
I have enough energy to start and effectively manage an enterprise
Preferences
Autonomy
I prefer working with the ability to make own decisions and with minimal supervision.
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Unrestricted creativity
I prefer working in an environment with no restriction to creativity
Freedom
I prefer having the freedom to choose a working schedule that I am comfortable with, the
location that I want and freedom to decide what I think is best for my business.
WHAT COULD GO WRONG WHEN BUYING A FRANCHISE
Buying a franchise has both its advantages and disadvantages. Many things can go wrong
when buying a franchise.
Failure to closely review the franchise agreement
A franchise agreement is a legal document governing the relationship between the franchisee
and the franchisor and specifying the terms of purchase of a franchise. This makes it the most
important document in this association. Sometimes franchisee may hurriedly make a final
decision agreeing to the terms of the agreement without closely monitoring it (Webber,
2013).
Failure to review the Disclosure Document
Before buying a franchise, the franchisee is required to have as much information as possible
about the franchisor for informed decision making. The disclosure Document presents an
opportunity for the franchisee to review information about the franchisor concerning the
agreements that the franchisee is required to sign, financial status of the franchisor and the
franchise system (Davies, el al,2011) The Disclosure document also contains information
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