Small Business Resources, Business Advice and Forms from AllBusiness.com

Deciding Whether to Franchise

Date: Friday, August 12 2005

Each franchisee's spending power is combined with the spending power of all the other franchisees in the local market and in the rest of the system. This combined spending power, on advertising for example, often enables franchises to not only dominate

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local markets and the established independents but also compete effectively against large, established chains.

Disadvantages for franchisees

Franchising is not right for every person, and it is important that you understand some of the disadvantages in a franchise relationship:

  • Loss of independence: For some people, one of the most serious disadvantages to becoming a franchisee is loss of independence. Franchise systems are structured in such a way that the franchisor sets many of the rules; the franchisee is required to operate the business according to the franchisor's manuals and procedures.

  • Over-dependence: Franchising's loss of independence, if taken to extremes, leads to a further disadvantage: over-dependence on the franchise system. Franchising succeeds when financial and emotional risk motivate franchisees. When they rely totally on the system for their success, their over-dependence can cause problems.
How a Franchisee Should Use the Franchise Disclosure Document
Interview with franchisee attorney Julie Lusthaus with the law firm of Einbinder and Dunn.