This paper is going to look at the PartiChairz business organization set up three years ago by Stephanie Taylor. This business is involved in the designing and making a range of covers together with sashes, bows, and other accessories to dress chairs to be used in parties and weddings. It is put into consideration that the business has grown in the local area. The business employs up to about four people who work part-time whenever there are competing events.
There are intentions by the business owners, that is, Stephanie, her husband (who joined the wife in the business to work as a partner), and the marketing director to carry out the expansion of the business to operate beyond the local area. In doing so, they are supposed to employ the agents whose role is to carry out the keeping of stocks of covers, do the dressing of the chairs at the events, and to show out samples to the potential customers.
They are also considering another alternative where they want to franchise the PartiChairz business as they have had suggestions from different sources of it being an easy way to go to realize quick growth in the business. In this business plan there will be carrying out of an analysis of the options the Taylors are having aimed at expanding their business; whether they should franchise their business or carry out the expansion on their own. The pros and cons of establishing and managing the franchised operation are also going to be considered.
The alternative financial sources that are appropriate to growing the business organization are as well going to be analyzed to see whether they are suitable for this business or not. There will also be offering advice on the suitable assistance that is available for the implementation and the recommendations.
We first of all start by considering what a franchise is. A franchise is a commercial and legal relationship that exists between the brand name of the owner, a trademark, a symbol of advertisement or a service mark who is referred to as the franchisor and a person or a group of people or even an organization referred to as the franchisee having a willingness to utilize that identification in the business enterprise. The franchise takes control of the method of carrying out business between the franchisor and the franchisee. In general terms, the franchisee carries out the selling of goods or services given out by the franchisor or the goods and services that measure up to the quality standards of the franchisor.
Although success is not guaranteed in this business, the venture has got higher chances of success as compared to independent ones. According to Hansen (2009), there is stating by the experts that four out of ten of each retail or service dollar that is used up by the consumers is used up on a business that is franchised. According to him, in the year 2000, there was estimation by many analysts that companies that carried out franchising together with their franchisees represented one trillion dollars in the yearly retail sales in the United States of America having an estimate of about eight percent of the retail businesses in the United States being businesses that are franchised. It is estimated that in every eight minutes in the course of a business day, there is opening of a new franchise business.
A lot of research has to be carried out in order for one to find the appropriate franchising opportunity. All these depend on the level of an investment one wants and is in a position to make. The initial fees are estimated to be from a thousand dollars and can go even beyond two hundred thousand dollars. On top of this, there are other costs for starting up that may be associated with equipment and real estate.
The average investment in a franchise business is approximately two hundred and fifty dollars, not including real estate. However, there still exist several opportunities for the investments that are not higher. More so, on average terms, the royalty fees given out to the franchisor by the franchisee fall between three percent and six percent of each and every month’s gross sales. The time period for the franchise contract is about ten years on average terms.
Pros and Cons of the Franchise Businesses
A business person or organization has to consider the advantages and disadvantages of the franchise business during the research on this kind of business in order to come up with the right decision. This will play a major role to establish whether the franchising opportunity is actually right for the individual or organization that intends to set up this franchise business.
Pros of the franchise business
In the franchise business, there is a business base that is established as well as the brand. The biggest advantage of one deciding to operate a franchise business is that it may have an established brand together with having the customers that have loyalty for the brand. This will make it easy for the business to pick up quickly without spending too much time to carry out customer awareness.
- Support in marketing is also realized in a franchise business. The franchises generally have a national (marketing) support accompanied by locally available marketing materials.
- There are also suppliers that are reputable. In most cases the franchisors have relationships that are stable with the suppliers for all the commodities or items that the franchisee may require. Therefore, there can be no any difficulties in obtaining the materials needed.
- More so, there is business support. In the franchise business there is always a network of business support and this makes it easier for a business to run without so much struggling.
- In some cases, training is carried out. The franchise operations that are stable, though they might be expensive, may offer the training in management and in the technical field.
- There can also be assistance in terms of finances. Among the franchisors, there are those who can give out loans to the franchisees and even other relevant assistance in order to enable the franchisees to run their businesses in a relatively smooth way.
- In the franchise business, there is access to the propriety methods and it is needless for one to invent again the wheel because there is gaining of access by the franchisees to all the secrets of trade.
- There is also the possibility to go on with research and development in order to develop a new product. Franchisees can be able to concentrate on improving the business operations and leave the undertaking of the new product development to the franchisor that spends more time and money on research in order to come up with a new, more improved product or products.
- In this business, as the owner, you are the boss. The owner is still in control of where he or she wants to go.
- Lastly but not least, under the franchise business, there is reduced risk. In comparing with setting up a new business from nothing with starting a franchise business, there is less risk involved in setting up a franchise business since the brand is already established other than starting from nowhere.
Cons of franchise business
- The initial costs may be very high. These costs involve the start up costs and the franchise fee. Among the franchise operations, some of them that are bigger can require very huge initial costs. Such costs may even stretch beyond the costs that can be involved in setting up one’s own business (Anonymous, 2010, For entrepreneurs: why buy a franchise).
- In this business, there is payment of royalties. These are payments made on a monthly basis by the franchisee to the franchisor. During the whole period in which one is operating as a franchisee, he or she has to pay a particular percentage of the gross sales to the franchisor. These payments bring down the total profits expected by the franchisee.
- There is also payment of the marketing or the advertisement fees. For the franchisee to receive the great support from the franchisor in terms of being helped to carry out marketing, it is the responsibility of the franchisee to pay for these costs basing on a contract between the two parties.
- More so, there is very minimal or limited creativity and flexibility. There are very explicit standards in many of the contracts providing very small room or no room for adjustments to be done on the brand, trying to restrict any form of creativity by the franchisee. The franchisee has to abide by the franchisor’s systems that have been put in place together with the rules and regulations laid down.
- There might be obtaining of supplies from a sole source. Stipulations may arise from many contracts (i.e. franchise) requiring the franchisors to make payment for their supplies from one and the only endorsed supplier’s list. This might have a disadvantage in that these suppliers may be selling out their supplies at a higher cost as compared to other available suppliers. This might as well compromise the quality of products supplied leading to low and poor quality goods.
- One can get locked up in to a contract that is long-term and unfavorable. Failure to carry out thorough research can lead one entering in to long term contract with the franchise that is not right and remain there for a period that can go up to several years.
- In the franchise business, one is reliant on the success of the franchisor. As one getting involved in the franchise business, your franchise’s reputation is just like that of the franchisor. Therefore, any hardships encountered by the franchisor will impact directly on you.
- More so, one can develop in his or her mind expectations that are not right. In opening a franchise as an alternative of opening one’s own business, there is no assurance that one will have to achieve success. One will still have to be a very keen and intelligent business operator to make things work for him or her.
- In general terms, there is always a risk in setting up a new business operation.
The option to be taken
Having considered the pros and cons of setting up a franchise business, it is considered that the best way for the Taylors to go in the expansion of their PartiChairz business is to franchise the business. Since they intend to expand their operations in other areas other than the local area, it would be appropriate that they franchise the business in order to be able to access customers in the most convenient way possible. By identifying an appropriate franchisor, they would be able to use the strong brand name and take the advantage of customer loyalty. This can not be quickly realized if they decide to expand on their own.
More so, by taking this option, there will be no difficulty in marketing and accessing reputable suppliers. They will also have to enjoy the business support networks that will enable the realization of the smooth running of their business. In addition, they will be able to concentrate on their business operations and leave the task of improving the products to the franchisor. By them making the right choice of the franchisor might enable them to obtain support from this franchisor in terms of finances and even training in the technical field and management.
Of great importance to the PartiChairz business when they make a decision to grow by entering a business franchise is that, there will be greatly reduced risk. This is applicable especially when putting into consideration that the business is expanding into regions with which the owners are not very much familiar since they have not operated there before. Using the franchisor will enable them carry out the operations in a relatively smooth way with a relatively lower risk.
However, entering in to a franchise business is not without its shortcomings. For instance, it might cost much money to the PartiChairz business to be franchised, especially at the start. Still, there can be extra costs involved in the course of the operation of the business that would not have been there if the expansion was to be done by the owners themselves. But all these can not carry much weight as compared with the benefits to be derived.
The benefits can still be enjoyed especially when the PartiChairz business owners make the right choice of the franchisor especially one who can offer assistance in terms of finances as well as any other relevant support that may ensure smooth running of the business. The Taylors should also set their expectations right. This might not be difficult with them since this business has already been operating for the last three years. This is to avoid making wrong expectations since there is no guarantee that there will always be success.
The issue of high start up costs among other costs associated with operating a franchised business can be solved in different ways. If the owners can finance the entire business operation from the personal savings and funds together with money generated from the current operation of the business, then that can be very great. However, if the money available is not adequate to cover all the costs to be involved in the starting up the business franchise, then the options available for the owners in order of popularity may be turning to family investors, the finances from the franchising system, loans from banks, and venture capital (Anonymous, 2004, Finding the best sources for financing your business).
It could be most appropriate for the owners of the PartiChairz to rely on their own generated finances and making the right choice in regard to identifying a franchisor who can offer financial support with the most favorable conditions.
Before the Taylor’s finally decide on buying into a franchise operation, they are advised to consult experts as they make the final preparations for buying a franchise to expand their operations. They may seek the services of the attorney to assist them with the understanding of all the whereabouts of the franchise contract.
They may also need the assistance of a financial advisor who can help them to come up with the best plan for the business and also advise on how to obtain funds for the business operation. To finalize, the Taylors have been entrepreneurs and owning a franchise might not probably be for them. This might only be a point for them to set a base in order to forge ahead into the future where they will have to carry the business operations on their own.
Anonymous, 2004. Finding the best sources for financing your business. Franchise help. Web.
Anonymous, 2010. For entrepreneurs: why buy a franchise. Resources for entrepreneurs. Web.
Hansen, R. S., 2009. Franchising Pros and Cons: Is franchising right for you?. Web.