Disadvantages of Franchising

Now, what are the disadvantages of franchising? Some of them are the:

1. Required standardized operations. You cannot make all of the rules. Contrary to the "be your own boss" lures in franchise advertisements, you will not be your own boss. You must subjugate your personal identity to that of the franchisor. If an important satisfaction to you is to have your business known by your name, a franchise operation is not for you. Most franchisors have the right to exert control and pressure you (1) to conform to standardized procedure; (2) to handle specific products or services which may not be particularly suitable or profitable in your marketing area; and (3) to follow other policies which may benefit others in the chain but not always you. You lose the freedom to make most decisions. In other words, you are not your own boss.

2. Sharing profits with the franchisor. The franchisor nearly always charges a royalty on a percentage of gross sales. The royalty fee must ultimately come out of your profits. Sometimes it must be paid whether you make a profit or not, and it must often be paid before the operation is established. On the other hand, the franchisor does not usually share your losses.

3. Lock of freedom to meet local competition. Under a franchise you may be restricted in establishing selling prices, in introducing additional products or service or dropping unprofitable ones, regardless of the local competition you must meet.

4. Danger of contracts being slanted to the advantage of the franchisor. Clauses in some contracts, imposed by the franchisor, may provide for unreasonably high sales quotas, mandatory working hours, cancellation or termination of the franchise for minor infringements, and/or restrictions on the franchisee in transferring his franchise or recovering his investment. The territory assigned the franchisee may be overlapping with that of another franchisor or may be otherwise inequitable. In settling disputes of any kind the bargaining power of the franchisor may be greater than that of the franchisee. In the past, fast food franchisees worked a median of 60 hours a week; some families as much as 120 hours. As the owner, you may still opt to do this. Alleged infringement of the franchisee's exclusive territory, long a major source of friction between franchisee and franchisor, need not be if your attorney oversees the contract. The power imbalance in favor of the franchisor is usually due not only to the franchisee's smaller financial resources but to a lack of information - information which the franchisor usually has.

5. Time spent preparing reports for the franchisor. Franchisors require specific reports and you may consider the time and effort in preparing them inordinately burdensome. On the other hand if these reports are helpful to the franchisor it is likely that they will also help you to manage your business more effectively.

6. Sharing the burden of the franchisor's mismanagement. While ordinarily the franchisor's chain develops good will among consumers, there may be instances in which ill will is developed by one of the units. As one link in the chain, you may suffer despite the excellence of your particular unit. Fortunately, in recent years this has been an infrequent occurrence.

7. Few management decisions. As a franchisee, you will probably not be permitted to make management decisions even to meet changing conditions in your territory. Canceling a product or introducing a new one is seldom allowed - certainly not without consultation with a representative of the franchisor and, possible, contract revision. The same applies to a desire to expand your operation beyond its specified geographic limits. As an entrepreneurial type, constant submission to the letter of the contract may become an irritant. On the other hand, the safeguard of the franchisor's name and mode of doing business - if it results in profits - may make the restrictions more palatable. Also, some of the larger franchisors now hold annual meetings with their franchisees and encourage open discussion and initiative.

 

 

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Say that you are the type who is beginning new small business. You Have given attention to the overall opportunities for success,
and have chosen the new business you wish to establish.

What practical issues will you face in establishing the organization? How Much cash will you need for starting new small business?
Where can you obtain it? What form of business organization does one have? Where should you locate the company? (start company
tips to follow along )

The very first question you need to reply is: How much cash will I need? But this question can not be answered until several other
questions are answered and many choices are made.

To Determine how much money is needed to start a company, enter all Of your potential income and all of your planned expenses onto
a job sheet or kind.

Though you may feel that This Type of preparation is more than You have to initiate a simple small business it's useful to begin
with this particular approach to management which puts down figures in black and white. You will discover the exact same approach
valuable within an established small business.

First, estimate your sales volume. This will depend on the overall Amount of business in the area, the number and ability of
competitors now sharing that business, and your capability to compete for the customer's dollar. Obtain assistance in making your
sales quote from wholesalers, trade associations, your banker, and other business-people. Several business and statistical books
may be useful in making sales volume quotes.

In reaching your final quote of earnings do not be over-enthusiastic. A brand new business generally grows slowly at the start.
Should you overestimate sales you are likely to spend too much in gear and initial inventory, and devote yourself to heavier
operating expenses than your actual sales volume will justify. As you're just starting up you may have no earnings for the first
few months. At any rate you can expect your first few weeks to be very low.

You must also decide what proportion of your sales will be money And what percentage will be sold on credit. If you estimate that
a certain part of the sales will be on credit then you must figure when you're likely to have the money for all these sales. 1
month? 2 months? More? Never?

In our guide to beginning new small business, estimate how Much cash will be paid out. Bear in mind that in starting a company you
may be purchasing equipment, paying fees and licenses, making deposits on lease, utilities and so forth, several months until you
open the door. A few of these expenses are simple to estimate. In case you have decided to lease a building (more about this
later) then you understand what your deposits will be and how much you'll need to pay out each month. You are probably able to get
the cost of fees, permits and utility deposits with a couple of telephone calls.

Other cost figures may take a bit more work to get. One way Is to acquire average operating ratios for the type of company in
which you are interested. One of the sources for such ratios are Dun & Bradstreet, Inc., trade associations, publishers of trade
magazines, technical accounting firms, industrial companies, and colleges and universities. The normal ratios for your kind of
company multiplied by your estimated sales volume will serve as bench marks for estimating the several items of expenditure. But
do not rely solely on this method for estimating each expense item. Verify and modify these estimates through investigation and
quotations in the particular market area in which you plan to operate.

Don't forget to pay yourself too. You may need money to live on if You have to quit your job. If your partner is working and can
encourage the family for some time you might not need to withdraw cash from the company. The longer you can go without taking
money from, the faster you'll build up a solid cash position. Now you've estimated your cash receipts and expenses, write down the
quantity of money you will put in the business to begin. This goes online 1 at the example below. Then add lines 1 and 2 for your
first month to get line 3. Then add up all of the expenses to find 5. Subtract line 5 from line 3 to get line 6. This cash in the
end of month 1 then goes to line 1 to the beginning of the next month, etc.

If you continue this for the entire year, very shortly you'll find You have negative amounts or a negative cash flow. About this
time you will also realize that you should be operating on this kind with a pencil which has a fantastic eraser.

In this overly-simplified illustration, you see that by the end of June you are minus $200 in money. Two solutions can be
attempted - reduce your buys in June by $200 or begin with $200 more. You may be unable to reduce expenses (they will probably go
up as your business starts). That means you will have to put in $200 more to start with. If all you've got is 4000 then the
additional $200 you will need is funding you need to get from somewhere else.

Don't be misled by this simple illustration. Many small businesses Begin with the 200, and attempt to acquire the $4000 from
someplace else. Since a Major reason for failure in the early phases of a company is Under-capitalization, be very careful in your
preparation at this point. You can Almost always plan on some unexpected expenses and some delays in expected income.
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