The history of franchising dates back from the mid-nineteenth century when Isaac Singer decided to enhance the distribution of his sewing machines. The endeavor was not successful in the long run, nonetheless, he is among those who initiated the business method of franchising in the United States.

Nowadays, franchising is used by various types of industries that include hostelry, restaurants and dealership of automobiles and appliances. McDonalds is a testament of the successful utilization of the business model.

There are certain advantages of franchisng particularly on the part of the franchisee. Franchisee can experience a quick start in the start of his business venture. Because of the established name, the likelihood of failure in starting up and operating a franchised business is lower compared to businesses that are still establishing its name. There is also a possibility of expansion once the franchise is proven to be successful on the part of the franchisor.

Most businesses that are offered for franchising are those that have established names and have created a lot of attention to a wide variety of markets. The successful branding of a certain business is attractive to would-be franchisees who wanted to establish a business that can generate faster cash flow and quick gain. It is an advantage on the part of the franchisee to operate a business with an established name that can compete with other business competitors in a certain market location.

Moreover, the likelihood to get failed from operating a franchised business is lower. Franchisee can have the benefit of improved profit when the business is situated in a strategic location and is nearer to its target market.

Franchisee can also have the advantage of being trained by the franchisor on the way the franchised business is handled.

On the part of the franchisor, he can experience a rapid expansion of his business and business ideas when more and more individuals avail of his franchising scheme. He may opt to leverage the capacity of the franchisee to create a distribution network. In this way, he can see the business growth and increased profits. The franchisee can also benefit from the expansion of the business model where there is a likelihood to gain more.

Although franchisee can avail of a quick start in starting his own business through franchising, he can also experience disadvantages from the business model.

The cost in starting a franchised business can be very expensive. Franchisee may have to pay for the costs of training, uniforms, signage, the organization cost including the construction expenditure and other necessary costs in putting up the franchised business. In addition to that, franchisee has to settle the franchise fee, the amortization, advertising contributions and ongoing royalties. Normally, these costs are set by the franchisor although the amount may vary.

Franchising involves a contractual agreement. Franchisee may be bound to incur expenses in altering or upgrading the franchised business as demanded by the franchisor.

The franchisee may also be bound for franchisor control. Because the franchisor has the legal right over the name of the business and the franchise as a whole despite the operation is entrusted to the franchisee, the latter cannot exercise full control over the franchised business. From time to time, the franchisor may conduct a random examination of the business location and the audited books. Failure on the franchisor’s testing may lead to the revocation or non-renewal of franchise rights.

The franchisor may face certain risks in offering franchising rights. The risks may occur when the franchisee is incompetent. It could cause conflict with the franchisor and may possibly damage the goodwill of the business name and the franchise itself.

On the other hand, an incompetent franchisor may damage the reputation of the business name and the franchise. The franchisees may suffer from the investments they put on the franchised business when the franchisor fails to make certain methods to market or advertise the brand name properly. Aggression of the franchisor in the promotion of the franchise may produce understanding and conflict with the franchisee.