Issues faced by owners and potential successors in a
franchise:
- Large Initial
investment:
- Opening a franchise requires a relatively large initial
investment into the business. These costs include initial
franchising fees, licensing fees, cost of real estate(in the form
of a lease), hiring and training of employees, equipment costs etc.
These costs have to be borne by the owners before they have been
able to generate a single sale in their respective franchise.
2. Rules laid out by
the Franchisor must be strictly followed:
- Unlike an independent business owner, franchisee owners have to
adhere to the rules and regulations that have been put into the
franchisee agreement. These laws restrict the freedom owner has in
controlling his business' operations and at times could hamper
growth of the business and increase costs.
- A breach of the rules laid out by the franchisor could lead to
a termination o the contract and thus would lead to the business
having to either shut down or face legal action.
3. Risks of running a
franchisee:
- Since there is a large initial investment associated with
getting into the franchisee business, there is a large risk of the
business failing and all the sunk costs being lost.
- Franchisees may struggle to generate sufficient revenue to
support the business due to various factors such as people's tastes
and preferences in that locality, other competitors, overestimation
of the footfall in the store etc.
4. Working with the
franchisor:
- Working with a franchisor is a lot like entering into a
marriage as it also a legally binding relationship that will last
for a long while. A healthy franchisee-franchisor relationship
ensures smooth working of the business. However working with a
franchisor who the franchisee cannot see eye to eye with can lead
to several issues in the running of the business in the future and
in the end cause harm to the business.
5. Issues with
succession:
- On top of the emotional issues involved in the succession
planning for a family business, franchisee owners face the
additional issue of the franchisor who must also be convinced that
the next in line is capable of running the business. Most
franchisee agreements state that if a franchisee owner dies, the
franchisor has the power to choose the successor. A poor
relationship with the franchisor could result in the already taxing
process of choosing a successor even more emotionally tiring and
painful. In many cases issues with succession of a family owned
franchisee have lead to the closure of the business.