Many people now-a-days are looking to purchase a franchise. A franchise is when a business (the franchisor) gives another business or individual (the franchisee) the right to supply its product or service. For example, a small business would pay a large well known company, such as, McDonalds to supply is service, this involves having the company’s name. An entrepreneur is an individual that develops a business idea; they do this despite the high risks, mainly because they receive high profits.
A huge advantage for a budding entrepreneur to purchase a franchise is that it is an already well known brand and an already proven idea, this enables the entrepreneur to be certain that it is an successful franchise; this means that the franchisor will already have a huge customer range as it is a big name globally, however if another established franchisee have given the franchisors brand name a bad reputation then the franchisee that the entrepreneur is trying to set up could be heavily affected and could have a negative effect on making money.
On the other hand, the franchisor already has a huge amount of finance and are fully established to there huge target market. This will allow the budding entrepreneur to have a good lift off and high amount of sales when the franchisee business opens. This is because the franchisee will have high publicly from the surrounding franchisees and the main franchisor. Although in the long run the franchisee will eventually equal off due to not receiving profit and more franchisees opening around them.
But, if the entrepreneur retains their independence then they will have a slow start off and gradually improve and increase due to the profit they are earning for themselves. Although, the franchisee will have an advantage on the competitors because of the well known name. However, the start up costs will be high. This is from the large amount of upfront fee that they paid to the franchisor to use its name and supply its products and will have to pay out numerous royalty payments, as well as this; they will be new and inexperienced.
On the other hand, because the franchise already has a popular brand and brand name, the customers will recognise it from previous advertising. This means that the entrepreneur purchasing the franchisee will not need to worry about advertising or the high costs involved. This is because the franchise is already advertised globally, which makes the financing easier meaning lower advertising costs.
Although, this means that the new franchisee have no control over decisions that are made by the franchise and has to stick to the choices that are made. This means that the franchisee can not reach the market needs of what people want as they have limited flexibility. A major disadvantage of being a franchisee is that if something goes public within the business then all the outlets of the franchise will be affected. Along side this, if the franchisor goes out of business then so does all the franchisees.
This is a huge draw back which includes high risk entrepreneurs to purchase a franchise as it could effectively go out of business very quickly. Being a franchisee means that you will already have suppliers, this means that it will be easier for the entrepreneur to set up immediately. For example, if you are a fast food restaurant like McDonalds then financial reports and supplying ingredients will be already set up so the new franchisee can take advantage of the suppliers systems that are already being used by other franchisees.
If the company was to buy in bulk to get more ingredients, napkins, etc then it will be an advantage to all of the franchisees and the franchisor because it will be cheaper. This is known as economy of scale. However, the franchisee will not receive any of the profit made as it will all go to the franchisor; this is called royalty payments so if the franchisee does not make enough profit then they can lose the revenue they gain.
In conclusion to the question, I believe that being a franchisee is a better opinion for a budding entrepreneur, this is mainly because of the reputation the franchisor has already gained and the well known name brand. However, there is no flexibility or control over the decisions that are made in the franchise but this could also work in the franchisees favour as it allows the budding entrepreneur to have guidance as they would be inexperienced.