Type: Business
Pages: 2 | Words: 425
Reading Time: 2 Minutes

Franchising refers to the process of buying an already existing business from another person or entity. An individual or entity that owns and sells a business is called franchisor while the party buying a business is called franchisee (Scarborough, Wilson & Zimmerer 5).

Franchising has various benefits, which may accrue to both franchisor and franchisee. Firstly, franchisees usually get well established businesses and products with strong brand names and large market shares. Franchisees thus do not incur costs related to new product development, for example, research and development, market surveys, introductory advertisements and penetration pricing. Franchisee benefits from well established brands that are fully recognized by customers.

Secondly, franchisor often helps franchisee in achieving goals and objectives of business. Franchisor usually provides advice and consultancy services to franchisee at no additional costs to enable a new business become more successful (Scarborough, Wilson & Zimmerer 39). Franchisee usually benefits from training and continued support from franchisor. Franchisee also enjoys well established business procedures, existing networks as well as stable business systems.

Thirdly, franchising removes most risks and uncertainties related to commencement of new businesses. A franchised business is thus safer for a franchisee as compared to starting a new business from scrap. Franchisees thus do not face start-up problems such as bureaucracies in registering new businesses and licensing (Swart 120). The risk of trial and error of starting a new business is also eliminated.

Fourthly, franchises often have greater chances of succeeding than other small businesses. This is because a group of individuals usually unites together to purchase a business as a franchise and hence provide different management ideas, skills and knowledge. This also results into pooling together of economic resources and expertise that is vital for the success of business. Franchises have lower rates of failure. Franchised brands are usually well established and have good records of success.

Fifthly, franchisee does not encounter barriers to entry into new markets or industries. According to Swart, franchisees usually have greater access to capital as compared to individual business persons (74). Financial institutions can thus easy lend capital to franchisee because it is well established.

Moreover, franchisee will also enjoy well established reputation from the franchisor. In my view, a good reputation of a business helps in building positive and strong relationships with consumers. This is because consumers often develop positive expectations from a new franchise. Last but not least, a franchisee will benefit from well established supply chains, storage facilities as well as promotional platforms. In this regard, a franchisee does not have to look for new intermediaries or distributors of the products.

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