Franchising in Business

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Franchising in Business

Many entrepreneurs have the goal of expanding their business. There are multiple ways to do this, and it will vary in each situation. To lower their own risk with expansion, an entrepreneur may choose the route of franchising. They then become a franchisor. This eliminates their risk of debt and puts the responsibility of getting the required capital on the franchisee. It also helps them to expand their existing business to various regions across the country and potentially the world. According to Jonathan Osler, franchising is when a business already exists with a product/service and has a legal agreement with a franchisee using their name and products/services in exchange for a fee.

When negotiating a franchisee agreement, there is the potential to put all the reasonability of business debt on the franchisee. Doing so can provide all the benefits of running a business without any of the cons. For example, if a franchise was to go under, all the burden of debt would fall onto the franchisee. This helps reduce the risk to the franchisor as they expand their business. Since the burden could fall on the franchisee, this motivates them to run a successful business since it is their money on the line. This is turn creates motivated management for this business. Motivated management is key to creating an efficient working environment for the employees and for profits. Hiring the right people is a key factor in successful business.

Entrepreneurs expanding their business can be burdensome with the amounts of funds it can take. To help reduce this, franchising can move the burden of acquiring the capital to the franchisor. In the agreement, the franchisee will agree to pay what amount is needed to start and operate the business. The more popular and successful the business is, the higher a franchisor may charge for their franchise fee. On top of the fee, the franchisor gets to collect monthly royalty and marketing fees which are usually a percentage of revenue. Being able to acquire capital from franchisees will help increase the speed of growth for a company. New locations for their business will continue without them having to provide any of their own capital.

Even with all the advantages, franchising also comes with cons. One of which is that control of the day-to-day operations is lost by the franchisor. It will be up to the franchisor to properly train the franchisee on how to run the business. From there, the franchisor must trust that the franchisee will run the business in a way that fits the goals and values of the overall business.
Franchising is an appealing strategy for entrepreneurs to grow their business. Jonathan Osler stands by this method as it is a great way to reduce burden. Even though it is not full proof, it surely is an appealing way to rapidly grow and become well known. It is not only good for the franchisor, but it also helps promote economic growth in the communities that they come to.