Posted on: 15/06/2009 

Business researchers have established that about 20 per cent of all businesses started anywhere in the world survive beyond three years.

A business scholar says some entrepreneurs whose ventures are likely to survive are those who take up franchises rather than set up fresh enterprises.

Prof Francis Gatumo of United States International University’s says a franchise deal is sealed when an existing and robust business (the franchisor) grants permission to another person or business (the franchisee) to use the former’s business idea.

In many cases, he says, a franchisee operates in a specific geographical area far from the franchisor but where the goods or services are in demand.

In this arrangement, the franchisee sells the franchisor’s products or services, trades under the franchisor’s trademark or trade name and benefits from the franchisor’s support.

Some common franchises are fast food, restaurants, hotels, clothing and publishing.

"The franchisee operates under the close guidance of the franchisor," Gatumo says.

In the deal, the franchisee owns the outlets through which the goods and services are dispensed, while the franchisor keeps control of the marketing.

But franchising has its glaring merits and demerits.

brighter side

On the brighter side, Gatumo says, is that the franchisee owns and runs a business which is based on proven idea of a brand name and he/she benefits from advertisements and promotions carried out by the franchisor.

Further, the contract guarantees the franchisee monopoly of selling goods and services in a certain area and the franchisor provides support through training.

Says Gatumo: Because the franchisee will be dealing in a tested commodity, raising the start up capital for a new franchise is easy because financiers are familiar and confident with the franchisor’s products.

The flip side of the concept is that franchises restrict franchisees on how they run the business.

And in some cases, other franchisees might give the product a bad name and you will find yourself out of business or fighting bad publicity.

"It is possible for other franchisees to give products you are selling a bad reputation and you might close shop," says Gatumo.

He says a franchisee may find it hard to sell off his franchise when need arises without the approval of the franchisor.

"Whatever the case a franchise is easier to run than starting your own business especially in retirement," he summarises.

Gatumo cautions that there are many conmen in the international business, so a lawyer should be involved in negotiating a franchise.