Understanding the Advantages of Franchising

Mihai-Alexandru Cristea 17/02/2021 | 16:09

The idea of franchising has become popular for a lot of reasons, owing to advantages that both franchisors and franchisees enjoy. If you’re contemplating the idea of franchising your business or buying a franchise, here are a few advantages to help you understand why hundreds of thousands of people choose franchising over starting a new business. 

 

Advantages for the Franchisor

There are a myriad of benefits that make franchising such a winning deal for any franchisor. If you own a business and you’re thinking of scaling up, here are the top reasons why you should totally consider franchising.

  1. Less Capital Needed

One of the biggest challenges of starting a business, whether it’s a new venture or an extra branch, is the capital needed. You’ll need to have enough capital to cover the overheads and maintain operations until the business starts making a profit. That’s not the case with franchising your business, as the franchisee becomes the one responsible for providing the capital needed to open and operate the franchised outlet. 

Better Management

Thanks to the variety of available franchising models, you’ll have better options when it comes to managing your brand. Information found at www.franchise.com/ explains the 4 most successful franchising models: single-unit, multi-unit, area development, and master-franchise ownership franchising models. Each franchise model delegates the management of the branches to the franchisee, which drastically reduces the involvement of the franchisor in daily operations. Moreover, this management structure provides a lean operational structure that improves efficiency and maximizes performance, leaving the managers and owners motivated. 

Better Staffing

Lean management is not the only workforce advantage of franchising your business; you won’t need as many employees with a franchise. You’ll be able to delegate most of the management and staffing work to the franchisees, and they’ll be free to operate the branch on their own terms. Overall, you both end up with a much leaner organization. 

Profitability

As a result of the lean management structure, the workforce becomes more focused on operating efficiently. With nothing but supervision needed from the franchisor, they can focus on developing the business, which in turn increases profit. Furthermore, franchisors profit as well from the periodical royalties paid by the franchisee. Hence, one of the most important questions to ask a franchisee before signing up is how much profit you can make in the first year.

Enhanced Speed of Growth

Starting a franchise is the most efficient and lean way to expand your business. The idea of being left behind or having your idea stolen while you’re preparing the capital to open a new branch is a nightmare for most business owners, and starting a franchise provides a simple yet effective solution for this dilemma. A franchise helps you multiply your marketing, advertising, and sales efforts as well, which serves in increasing your customer base and loyalty. 

Less Risk for Liability

Running a business always comes with a high risk of liability, and this risk increases once you scale up your business. However, since the franchisee will be the legal owner of the branch, they’ll be the ones signing lease agreements, managing employees, and handling all legal activities. 

Enhanced Brand Equity

Finally, opening franchising outlets is the fastest way to grow the market share of any brand. By doing so, your brand equity will grow effectively and quickly, with the least effort on your part. 

Advantages for the Franchisee

The franchisor isn’t the only one winning in the franchising deal. The franchisee will also get to enjoy the following advantages:

Lower Risk of Failure

The fact that 21.5% to 90 startups fail within 1 to 5 years is scary. However, buying a franchise with an established concept significantly lowers this risk. Since franchises are turn-key solutions, there’s little to no experimentation to be done. 

Receiving Business Assistance

One of the biggest reasons for the lower risk of failure is that the franchise owners receive training and guidance as a part of the deal. Moreover, franchisees receive supplies and equipment from the franchisors, as well as the buying power of the parent company, which both sets them up for seamless operations and passes on the savings to the branch.

Having an Exposure Head Start

You won’t have to start your marketing from scratch when it comes to owning a franchise. You’ll be able to leverage the name of the parent company to your advantage and access the fanbase of a nationally-recognized brand. 

Higher Profits

When compared to management-level employees working a similar role in other establishments, it’s clear that the profit of franchisees is higher. Moreover, since they’re also the owners of the franchise, they have more power to make decisions that will profit them. 

Starting your own business definitely has its own advantages, but that’s not the only way to make your way into the world of business. The idea of franchising has gained the interest of both business owners and aspiring entrepreneurs for many reasons. At the end of the day, you can only reach the best decision by weighing the pros and cons of all your options.

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Mihai-Alexandru Cristea | 29/11/2022 | 10:17

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