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Question
What are the disadvantages of franchising to the franchisee?
Solution
Disadvantages of franchising :
- Higher cost: Costs may be higher than expectations. The costs include initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor, this may be more than the expectations.
- Huge restrictions: The franchise agreement usually includes strong restrictions on how to run the business. Franchise might not be able to make changes to suit the local market.
- Risk: There is a risk that the franchisor might go out of business and in this case a huge risk is involved.
- Bad reputation: Other franchisees could give the brand a bad reputation, so the selection process needs to be perfect.
- No sale option: Franchise finds it difficult to sell to someone if willing to sell due to any reason. It can only be sold to someone approved by the franchisor.
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