The Franchising Contract And Franchise Profitability: A Literature Review

Abstract

Franchising is one of the most preferred businesses nowadays due to some reasons. Foremost of these is the issue of profitability and low level of risk on the part of the franchisee. Although some may have gained some level of satisfaction there are few whose profitability has been compromised due to some issues like choice of location, franchising fees, royalties, lack of control over franchisees' staff. These factors may have contributed a lot to low profitability on the use of the franchisees. Thus, imperative to understand that franchisee's financial success or failure can have implications not only on the former business interest but equally to franchisors. It is then for this reason that as much as possible the two parties must find a common ground by which both may be financially benefited. The franchisor has a lot to contribute in this aspect because both technically and practically he runs indirectly the whole of franchising as they say; he runs the show, the franchisee is just an expectator. He decides everything; the location, the facilities, the staff, production process and inventories,  and even for such matter as pricing and quality, and of course franchise fees and royalties. It is at this juncture to safely conclude that the outcome of the business in financial terms primarily rests in the hands of the franchisor. If this is the case so, therefore, the financial outcome of the business is totally in his hand.  It can all affect the financial interest of the franchisors but research made on franchising failed to take a closer look at this aspect that the franchisor's financial goals are not as well properly served if some of its franchisees do not realize the appropriate level of returns.