A Problem with Franchising

By on 12-17-2016 in Business

Franchising is a good business idea. It saves the franchisee from all the risks of establishing an own business name and model. The franchise acquired is likely to be well-established as well, so the franchisee will have reduced instability in the sales of products and services.

In exchange for this security, the franchisee should pay a particular amount to the franchisor, and maybe even pay royalties to the franchisor in an agreed date. Instantly putting out money for a franchise may look like a bad deal at first glance. But the reduced risk is what makes franchising worth it in the long run.

While franchising is quite the secure business model, it is not perfect, especially because the franchisee is bound to the terms that are established by the franchisor. Of course, the terms protect both the interests of the franchisee and the franchisor, but there are instances that disputes could arise.

According to the website of Williams Kherkher business attorneys, the most common problems between the franchisee and the franchisor involve the following:

  • Rights under the franchise agreement
  • Misinterpretations and nondisclosure claims
  • Issues of compliance under the franchise agreement
  • Claims of deceptive or unfair trade practices

Aside from the disputes between franchisee and franchisor, there are third parties that could create problems in franchising as well. The National Labor Relations Board in Washington is a perfect example, as it takes McDonald’s to court. The NLRB argues that the fast food franchise and its franchisees should be jointly responsible for their employees. If McDonald’s loses, the franchise could potentially have a host of new expenses, such as health insurance for its local employees. This would increase operating costs and franchisors will most likely pass these costs to franchisees, making licensing costs skyrocket.

This element of unpredictability makes franchising look like a mixed bag of good and bad. But when you look at it, businesses, whether franchised or not, will always have this element. When it comes to deciding whether to buy a franchise or establish your own brand, you should decide which part of your business journey you can take as unpredictable. Is it the risk of failure for an unestablished company, or the faithful compliance to an established company no matter what?