Franchise is a new business that uses the name, logo, aim, product and trading system of an

already established or successful business. In this case the already established business is
known as the franchiser while the newly formed one which uses its model and system is
known as the franchisee. There are several advantages and disadvantages of owning a
franchise as discussed below.
The biggest positive of owning a franchise is that the new business will not have many
survival issues which are the biggest challenge to any new start-up. The chances of failure
would be very less for the new business since it is using brand name and product of an
already successful business. It will have a market and costumer base from the very first day
of operation. Moreover, the franchiser can provide necessary training and business advice
to the franchisee which can prove to be valuable for future sales and operation. Another
major benefit of owning a franchise would be a reduction in large-scale advertising cost.
The franchiser will pay for national and international advertisements. Additionally, owning a
franchise implies that the suppliers are pre-decided and checked for their quality and
supplies by the franchiser. A franchisee is not required to work a lot on finding and
establishing business ties with new suppliers. There will also be less local competition as the
franchiser agrees not to open another branch of the same business within a specific area of
one franchise.
These advantages might seem convincing enough to go for owning a franchise but there is a
flip side of things as well. First, the initial franchise license fee can be a huge amount so it
would be quite expensive to take up a franchise of a very successful business. Another
major disadvantage of owning a franchise is that a decided share of profit would have to be
paid to the franchiser annually which implies lesser profit for franchisee. Also, whereas the
large-scale promotions are paid by the franchiser, but the small-scale or local
advertisements would still have to be paid by the franchisee leading to overall cost
additions. Moreover, as pre-determined suppliers can be an advantage but there are
drawbacks of it too. A franchise would have very less autonomy over the type of supplies
and the choice of suppliers so it might have to compromise on better options available.
Similarly, there would be a reduced control of the owner over pricing and retailing
decisions. The style, strategy and layout would remain largely as per franchiser’s demand.
So, the utility of owning a franchise does depend upon the objectives of owner or other
shareholders. If they want to make immediate profits with a very low risk of survival issues,
then owning a franchise will be a smart decision. On the other hand, if they want to
introduce more innovation, creativity and keep control of business decisions then
franchising might not be a very good idea. For example, one can choose to own a franchise
of Mc Donald’s if one’s aim is to have a secure costumer base and promising profits from
the first day of operation but if one wants to plunge into providing a niche in cuisine and
introduce new taste or environment in a food business then its better not to opt for owning
a franchise and go for a new startup.