This article are provided for information purposes only, and are not intended as legal advice.


Franchising vs corporate ownership

September 4th, 2009

If you have a business idea and implement into a successful business, now you want to expand your business?   Do you raise capital to expand your business or do you franchise your concept?

 

There are advantages and disadvantages of both.  In Canada, many coffee shops have gone franchise but Starbucks only has corporate stores.  There is no right or wrong approach.

 

Franchising – advantages

  • do not need to raise capital each time you expand locations
  • you do not have to find staff to run the operation
  • you do not need the additional working capital to operate the store
  • if this is a cash operation, such as a coffee shop, there is a lot of transactions and theft by employees could be rampart however if the owner is present, he/she can keep an eye on this and keep it to a minimum
  • ability to expand into multiple locations quickly
  • growth is not impeded by capital
  • make money by franchising and also create a perpetual income stream called a royalty

 

Advantages of corporate stores

  • you can control the quality of service a bit better
  • you can hire the type of people that you want to have more consistency between stores
  • you can rectify a delinquent level of standards – ie cleanliness in a store.  In a franchise, they may have this in the contract but it may take longer to have the store brought up to standards because a franchise may have to go through a formal procedure whereas head office an issue a reprimand and have it fixed that day
  • no complaints that one franchise is located too close to another franchise which could diminish sales of the first location
  • can have the same standard in different countries

 

Remember, expanding your empire using franchising or corporate money are both viable options for growing your business


Filed under: Franchises — Gary Landa @ 9:00 am


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