Several disadvantages to franchising are large start-up costs (the bigger the franchise the more it costs to start-up), must pay and contribute to shared profit and advertising (in Liz’s case 1.5% of gross), follow franchisors standard operating procedures, perceived reputation (good or bad), standard restrictions on buying and selling the business, potential fraudulent franchisors that promise but provide an inadequate training program or no training at all, and market saturation (a store on every corner) (Sabolic, 2011).
With the advantages and disadvantages of franchising being pointed out, there is a lot that Liz or anyone else looking to start a business must consider. Liz should focus on a business that fits her style and be something that she is passionate about. In this discussion Liz is looking at the possibility of opening a small organic convenience store. The question now becomes does she open a franchise with Foods of Reality or open her own store?
For someone starting out a franchise may be the way to go. Liz may consider becoming a franchisee if her knowledge of organic products and running a business is limited. She may feel better knowing that she is in business for herself but not by herself, meaning that the franchisor can give her the guidance and support that she will need to help make her business successful. Another consideration is the fact that Foods of Reality is already established and has regular customers and a steady stream of traffic plus they advertise giving her a more competitive edge than going into business for and by herself. In this case of franchising it is a shared opportunity, but at what cost?
We already know that the advertising through Foods of Reality requires a contribution of 1.5% of gross revenue. We also know that Liz will be able to save on products that she will sell because of the volume discount through the franchisor, she may also be able to save on the fixtures for the store for the same reason and is allowed per the contract to pay for the fixtures over a 10 year period. This could possibly keep her out of pocket starting costs at a more controllable or…