Franchising a business means distributing a trademark of a business in return for some amount or a percentage in monthly sales
. It helps in the expansion of business without considering the operational expenses. It can also minimize the risk and helps to concentrate in the growth of a business.
There are lots of difficulties with the franchise based business. Franchisors have to be more careful in selecting franchisees than appointing direct employees for the expansion of business. Incompetent employees can be more easily replaced than incompetent franchisees. Also incompetent franchisees can harm the reputation of the company.
On the other side franchisees also face lots of difficulties in carrying out business. They have to invest a large starting amount for the agreement without having any surety of financial success. Apart from the initial capital, large investment is required in Bookkeeping, Finance & Accounting etc. Although franchisee can use the trademark of franchisor, franchisee has very less control over the business. The franchise agreement gives no right to franchisee to change the outlook, standard uniform, marketing materials or the price of any commodity. Sometime a small conflict between franchisor and franchisee can destroy the franchise agreement and can results into a long battle.
In UK, British Franchise Association is a self regulating governing body which helps in maintaining good relationship between franchisees and franchisors. The code of ethical conduct adopted by BFA contains some clauses which all the members should abide by.
In US, Federal Trade Commission helps in maintaining healthy relationship between franchisee and franchisor. Disputes between them are solved under the jurisdiction of their state.