“A franchise is the agreement or license” whereby the franchisor agrees to let the franchisee market his/her products/services in return for a certain fee (Beshel, 2001, p. 1). Innumerable advantages are accrued by the franchisee through such an arrangement. Brand Recognition The biggest advantage for a franchisee is the corporate image that the business acquires. The franchisee gets the right to use the brand name and trade mark of an established, well known company with a sizeable client/customer following.
Through the agreement, the franchisee becomes entitled to something that takes decades to build, namely trust of the customers and brand recognition. The agreement also obliges the franchisor to provide the franchisee with extensive support, in the form of facilitations for a grand opening, training and construction design etc. Hence, a franchise gets a quick and easy start. A sole proprietor does not enjoy such a prosperous launch.
Lacking support on such a wide scale, he has to fend from himself right form arranging for finances to leasing the premises and establishing a trademark that can take years before it gains customers’ trust. Lacking the corporate backing of a franchise, it can take long for a sole proprietor to establish his business. It is for these reasons that sole proprietorship is more prone to risks whereas a franchise has more chances of success. However, for this head start, the franchisee pays the franchisor not just an upfront franchise fee, but also an ongoing royalty fees.
Independence in business matters A franchisee is far less independent than a sole proprietor. The legal bindings of the franchise agreement can be debilitating and encumbering in some cases. The franchisee is bound by the agreement to adhere to the guidelines and policies established by the company. He must follow the operating procedures and business model of the franchisor. Compared to this, a sole proprietor, being all in all, has complete independence of decision making.
In the absence of any opposition and legal binding, he can take decisions quickly and boldly. Sole proprietorship brings the owner closer to the dream of being ones own boss. Moreover, getting a franchise is a cumbersome and expensive legal process as opposed to sole proprietorship that can be acquired without much formalities and paperwork. A Franchise can also suffer from not only the bad image of the brand but also due to poor performance of another franchisee because that will tarnish the image of the brand that both are sharing.
Independent businesses do not have any such considerations Surviving recession It is always more difficult for a sole proprietor to find credit for his business. Whereas, acquiring credit is relatively easy for a franchise. Noting the higher survivability of franchises, Joe Lindenmayer reasoned that more franchises than small independent businesses survived the financial crunch because “the franchisor has a vested interest in the survival of each and every franchise owner and will do all it can to ensure the network’s success” (Lindenmayer, 2010).
For this reason, franchisors came to the franchisees’ rescue with means such as reduction in franchise and royalty fees and even loaning…something the independent businesses didn’t have. Conclusion What is the most appropriate form of business is entirely dependent on the type of business one is considering to start. For those who want to run their own show, sole proprietorship will be more appropriate. Those looking to make an easy start with minimum risks should consider a franchise.
Reference Barbara Beshel. (2001). An Introduction to Franchising. New York: IFA Educational Foundation. Retrieved April 6, 2010, from http://www. franchise. org/uploadedFiles/Franchise_Industry/Resources/Education_Foundation/Intro%20to%20Franchising%20Student%20Guide. pdf Lindenmayer, J. (2010, February 25). Franchise Ownership in the New Economy. Retrieved April 6, 2010, from Entrepreneur: http://www. entrepreneur. com/franchises/thefranchiseinsidercolumnistjoelindenmayer/article205182. html