Why should you become a franchisor?
What disadvantages do franchisors have from franchising?
Franchising involves various sets of problems which franchisors must overcome. These include:
- Choice of Partner
Choosing partners is a task that is both important and difficult for franchisors. Large systems have developed a detailed selection procedure. All reputable franchisors have detailed franchisee profiles, which they use to check candidates. Personal characteristics, professional qualifications and professional experience are the main factors, which play a role in the choice of partners. If the wrong choice is made this can have serious consequences for the whole system and generally a simple termination of the contract cannot solve the problem that generally cannot be solved by a simple termination of the contract. Especially in services the right choice of an adequate partner is of vital importance, as the quality of the delivered services as well as the behaviour and attitude of the service provider directly influence the perception of the brand and the whole franchise system. Consequently, the future economic development and prosperity will depend upon the right choice of partners.
As the right of franchisors to control and issue instructions to their franchisees are limited, they must do a lot of convincing to ensure that their specifications are carried out. As a result it is often the case that a certain amount of time passes before centrally controlled measures are put into practice. However, the positive effects of open discussions normally more than compensate for this disadvantage.
- Profit Margin
Franchisors’ takings from franchising are usually limited to entry fees and continuous franchise fees. In some cases mark-ups are also included for franchisees when they are obliged to buy contractual goods. If franchisors had their own businesses, they would often be more profitable but then they would have to bear the risks and the costs should the business fail.
- Dealing with Conflicts
Misunderstandings and conflicts of interests can occur in any kind of partnership. In franchise systems it is often the case that the potential for conflicts increases as the success of a franchisee business increases. This is due to the fact that franchisees understandably put their economic success down to their own personal commitment and increasingly feel the help from franchisors to be annoying. If an agreement between the two partners cannot be reached in this phase then the problems normally result in the contract being ended. Here great efforts should be made to avoid legal proceedings as these involve time, money and stress and in most cases it is not possible to foresee what the court judgement will be. Foresighted franchisors now already provide conciliation or mediation procedures for such cases.
- Ending of Contracts
There are manifold problems involved in terminating a franchise partnership, as a fair solution must be found above all for the future of the business and the remaining furnishings and stock. If a mutual solution cannot be found then this could have a negative effect on other franchisees or people interested in starting a franchise business. As franchisors must bear their good reputation in mind both for gaining new partners and for their business, all aspects of the consequences of any damage to their image must be taken into consideration.