What are the benefits of franchising?

The biggest advantage of being a franchisee is that the company already has a product or service. Someone has already done the job of starting and building a sustainable business system. Rookie blunders will almost certainly have been smoothed out.

Another significant advantage of franchising is the brand, which is part of an established corporate structure. Whether on a local, national, or worldwide scale, the branding of a franchise may be advantageous both before and after you invest. Familiarity can help you build a customer base since potential customers already know what to expect from that brand.

Here are the reasons that make franchising a lucrative prospect:

• Finance.

The most common impediment to expansion that today's small firms encounter is a lack of capital. Even before the credit crunch of 2008-09 and the ensuing "new normal," entrepreneurs frequently discovered that their expansion ambitions outstripped their capacity to fund them.

As an alternative to the capital acquisition, franchising has various advantages. The major reason most businesses choose franchising is that it allows them to expand without incurring debt or incurring the expense of stock. As a result, as a franchisor, you not only require significantly less cash to grow but your risk is generally confined to the cash you invest in building your franchise firm – an amount that is usually less than the cost of creating another company-owned site.

• The Rate of Growth.

Every entrepreneur who has created something genuinely unique has the same recurring nightmare, that someone else might beat them to the market with the same ideas. And these anxieties are frequently grounded in truth.

The issue is that opening just one unit takes time. Because the franchisee undertakes the majority of these activities, for some businesses, franchising may be the only option to assure that they achieve a market leadership position before competitors intrude into their sector. Franchising gives the franchisor not just financial advantage, but also human resource power. Franchising enables small enterprises to compete with much larger corporations, allowing them to saturate marketplaces before major corporations can respond.

• Leverage in Staffing.

Franchising enables franchisors to operate efficiently with a much lighter structure. Because franchisees will take on many of the activities that would otherwise go to the corporate home office, franchisors can use these initiatives to minimize total personnel.

• Easy Supervision.

From a managerial standpoint, franchising has additional benefits. For one, the franchisor is not in charge of the day-to-day operations of the individual franchise units. At the most basic level, this means that if a shift leader or crew member calls in sick in the middle of the night, they will notify your franchisee, not you. And it's up to the franchisee to locate a substitute or cover their shift. And if they chose to pay below-market wages, hire friends and family, it will not affect you or your financial returns. Franchising frees you up from these obligations, allowing you to focus your efforts on improving the broader picture.

• Increased Profitability.

The above-mentioned personnel leverage and simplicity of oversight enable franchise firms to operate profitably. Because franchisors can rely on franchisees to handle site selection, lease negotiation, local marketing, hiring, training, accounting, payroll, and other human resources functions (to name a few), the franchisor's organization is typically much leaner (and frequently leverages off the organization that's already in place to support company operations). As a result, a franchise can be much more profitable.

• Risk Reduction.

Franchising, by definition, decreases risk for the franchisor. Unless you choose to structure it differently (and few do), the franchisee is solely responsible for the investment in the franchise operation, including paying for any build-out, purchasing any inventory, hiring any employees, and providing any working capital required to get the business up and running.

The franchisee is also the one who executes leases for equipment, automobiles, and the physical location, as well as having liability for what happens within the unit itself. Hence, as a franchisor, you are largely out of liability for employee litigation (e.g., sexual harassment, age discrimination, EEOC), consumer litigation (the hot coffee spilled in your customer's lap), or accidents that occur in your franchise (slip and fall).

In this perspective, many people regard franchising as a long-term commitment, similar to marriage. A solid fit between franchisor and franchisee, with mutual long-term goals, is critical to the success of each franchise unit, and hence the brand as a whole is an important issue that must be properly examined by both sides before any contract is signed. 

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