Franchise Asia APRIL 2015

Special
Notwithstanding, the above are also
factors to consider when deciding on
whether to franchise a business or expand
it yourself. Of course, there are other
factors that you need to consider when
it comes to franchising or expanding a
business yourself.
The Advantages of
Franchising
There are many advantages attached
to franchising over a company-owned
expansion. Many business owners resort
to franchising for four main reasons which
include:
• Capital: Expanding a business
requires large capital. A business that
is being operated with low capital will
certainly take far more years to develop
than the one that is funded with huge
capital. The advantage is that the
franchisor watches the business as it
grow without spending any part of his
money.
• Motivated management: It’s a
common truth that a business that
is managed by motivated staff will
surely do well. The franchisees will do
everything necessary to see that the
business expands. They see to the
welfare of their staff. They also train
their staff to become professionals in
their jobs. The staff are trained to work
towards the goals of the business.
While the franchisee works eminently
to expand the business, you are
relaxed and yet, still get compensated.
• Speed of growth: The franchisee
invests huge capital into the
business. A business filled with
motivated staff and funded with huge
capital is expected to do well. This
makes the business to expand rapidly
if properly managed.
• Reduced risk: Since the business is
franchised, most of the risk goes to the
franchisee. The most interesting part
here is that, despite not spending any
of your capital in the business, you are
still compensated. You grow by using
other people’s money and at the same
time, you are operating without risks.
Debunking the Myths
There are some wide held beliefs about
franchising which are far from the truth.
One of them is that, franchising is a
system of dealing with franchisors legally.
The reason for this belief is that America
is a litigious society in which someone can
sue anybody just for anything.
Franchising is actually less prone to
litigation. The reason is that a franchise
contracts is a one-sided document. You
can be protected if it is being handled by a
professional attorney that specializes in law.
Many litigation practices such as cases
involving the proper use of advertising
funds and that of territorial encroachment
have been bypassed. There are now much
fewer lawsuits than they were in the past
couple of decades.
The major issues that often lead to lawsuit
are actually violations of franchise law
and fraud in the document of selling a
franchise. In order to prevent the former
from happening, it’s important that you
hire a professional franchise attorney
and train all your staff on franchise law.
Make sure that each and every one of
your staff is honest with the company.
Use a written checklist or better still,
video tape to interview every franchisee
concerning his or her sales process and
the representation made.
Franchising is a great tool that helps you to
avoid liabilities. However, as a franchisor,
each time any contract is signed by you,
you are obligated to operate according to
the terms of that document.
Let’s consider the company-owned
operations.
If you are the operating the company
yourself, you will be responsible for
everything. You will have the liability
for every lease you execute – ranging
from equipment, vehicles, buildings.
The liability also extends to all wrong
operations in the business as well as
customers and employees liabilities such
as breach of contract, sexual harassment,
personal injuries and so many others.
However, in franchising, these liabilities
are solely that of the franchisee.
Nevertheless, this doesn’t mean that
you cannot be sued. But with a good
written contract, the liability will be that
of the franchisee. In addition, you are
also insured by the franchisee against
any damage, harm and wrong operations
resulting from the business.
Franchise Asia • 2015 Vol 27
11