Most wannabe entrepreneurs consider that buying a franchise is the most appealing way of owning your own business. Although the franchisor can’t guarantee that the franchise business will be successful, studies have shown that the franchise business model is more likely to be successful than starting your own business from scratch.
Franchises are systems that have already been tested and refined over the years. This gives you a chance to start faster, reduce your initial investment, and most importantly, avoid mistakes. Having a recognizable brand that consumers already trust is a huge advantage for franchisees who join established companies.
Building a brand from scratch is hard and it takes effort, time, and money if you want to become well known. With franchising, you can skip these steps and focus your energy on building a base of loyal customers which will make your ramp-up phase much faster.
Here are 16 benefits of starting a franchise.
1. Established business
Franchises offer the opportunity of working under the banner of an already well-established business. Numerous Ideas, operating techniques, and the brand itself have already been tested over the years, therefore, they are ready to be executed again and again at any new location.
2. Brand recognition
When you operate under the banner of a well-known franchise, you as a franchisee are able to take advantage of the already established brand of the business. Because of this, there will be less work and cost involved in building the brand of the business. The brand of the business will already be well known and trusted on the market, and so it should generate a steady chain of brand-loyal customers. By adopting a franchise you will get the advantage of the franchise’s trademark and all of the benefits of a registered trademark.
3. Easier business financing
One big advantage of franchises is that you can acquire business finance much easier. Investors are always more willing to invest in an established business network with a secure brand with a functional support structure. Also, in some cases, you can get finances from the franchisor, which can make the start of a new business much easier.
4. Established business relationships
Most franchisors already have many established business relationships, which can be taken advantage of by the franchisee. For instance, relationships with suppliers and also distributors will all be in place and will be easy to work with. Also, established relationships with advertisers and marketing teams can really help with your new business startup.
5. The ability to work with the big industry players
You will always have bigger buying power if your product is sold in 50 stores instead of just one.
When you’re a part of a large franchise network you will have the ability to leverage the industry relationships your franchisor has already created on your behalf.
6. Support and security
If you buy a franchise, the franchisor will offer you their support and security system. This includes training schemes and support with aspects like the management of accounts, sales, and advertising. These services are sometimes included in the price of the franchise fee.
7. Cost benefits
Believe it or not, buying a franchise can be less expensive than opening an independent business. As a franchise, you will have to pay a franchise fee of 25000 to 5000$ or even more.
So why is it less expensive?
When you become a franchisee, you will know exactly what inventory to buy and what equipment to lease. Due to the already established relationship with suppliers and the franchisor’s ability to buy in volume you will surely get better prices. You will also quickly learn how to promote your business without making mistakes with advertising that doesn’t work.
This way you will be able to control your startup costs and avoid losing thousands of dollars due to mistakes. The franchisor’s experience will help you in reducing expenses while at the same time increasing your revenue.
Another key advantage is that the franchisor has already taken care of expenses that you as a franchisee won’t have to undertake. This includes registering its trademark, logo design, brand web site development, and consumer advertising materials. If you’re in the beverage-based business, franchises just like ChaTime will help you create proprietary recipes and establish supply chain relationships and negotiated discounts.
If you decide to go into the franchise business you will probably be cash flow positive sooner than if you own an independent business. This is especially a good strategy for first-time business owners. Although your startup costs may be higher because of the franchise fee, in the future they will be much lower overall.
Your operation will have to pay the franchisor an ongoing royalty, nevertheless, you will gain the support, established systems, and brand recognition that will be provided by the franchisor.
Most franchisors have developed strong and proven marketing campaigns over the years which you can naturally use for leveraging their already existing brand.
Franchisors have better buying power, which will, in the end, save you from significant expenses.
8. Built-in support network
The great thing about joining a franchise is the built-in support network you get from your fellow franchise owners. Whether you’re starting out or have been in business for a while, having people with experience who to turn is a great recourse for every franchisee. When it comes to independent businesses this kind of network doesn’t exist or it’s really hard to find.
Starting your own business is always risky and requires a leap of faith. Although going into the territory of self-employment may seem daunting, sometimes it can be really rewarding.
Starting a franchise it’s quite different. You are able to be your own boss and do what you love and at the same time have the comfort of knowing that there is a proven system backing you up.
Franchises always provide a how-to-guide that is based on decades of experience that can show you the right path to your success.
10. Training and advice
One of the biggest advantages of franchising is the training and advice and support from the franchisors that never stops. Although the franchisee is independently running operations, the franchisors always want them to be successful. This kind of dedication isn’t just about the money, but it is also about keeping the reputation of the business. Every franchise is a part of a system and the success of each one brings benefits to the entire system.
11. Legal requirements
Once you do the research be smart and don’t stop there. Seek advice from experts such as attorneys that specialize in franchising and business consultants. Pay attention to what they are telling you and try not to be pressured by the person selling you the franchise.
Create clear written contracts and agreements and you will certainly avoid uncertainty and ill-matched expectations. Always make sure you read and understand these contracts and agreements before you sign them. Once they are signed, they are binding and enforceable.
Before your business relationship begins, the contract should have a “dispute resolution” procedure. The procedure should also include guidelines for mediation.
Litigations of commercial disputes should always be avoided because they are costly and time-consuming and always have a loser. Your franchise agreement may have a fixed term and once it expires you will probably have to pay a renewal fee.
12. Fees and costs
One important thing you should consider when starting a franchise is how much you can afford to spend.
When it comes to franchising, there is a business model for every budget. Think about how much you are able to invest, how much liquid cash you have, and even how much you can borrow.
The next step is to research the market for the sector you want to be a part of and then research the franchise.
Carefully review the franchise disclosure agreement. Apart from earnings, claims, and financial statements, look for any litigation or bankruptcy information in the document.
Don’t forget to ask about the ongoing fees you are expected to pay. Meet and talk to people that are a part of the same franchise and if it is possible, spend time with employees to get a clear picture of how the business operates.
It doesn’t matter if the franchisor has one unit or 5000, it will always have more name recognition than you would have as a startup business. If its name recognition has some goodwill at the consumer level, your franchise will benefit from it.
This is especially good if you’re planning to buy a service-based franchise.
14. A good asset to sell when the time comes
If you’re a successful business owner, at one point it will be worth something if you decide to sell it. How much your business is worth and how easily you can sell it may differ significantly between independent and franchised businesses. Your business, if you decide to sell it, will come with all the franchise benefits we mentioned, and, because of this, it will make an interesting asset for prospective buyers. They will not just be buying a business, but an established system and brand that goes along with initial training and support.
Another great aspect of franchising is that you will be able to easily leave the business because the operation manual already exists and the start-up team is ready to get the new owner of your store operating.
15. Motivated management
Most entrepreneurs that plan to expand their business share the same problem and that is finding good unit managers. Business owners spend months looking for and training a new manager and usually, they either leave or get hired by their competitors. Hired managers are employees who sometimes have or don’ have a genuine commitment to their work.
Because of this, supervising their work from a distance can be quite a challenge.
Franchising has overcome this problem by substituting an owner for the manager. People who invest money are generally more motivated in the success of the operation. A franchisee is an owner, often with his life savings invested in the business. His compensation comes mainly in the form of profits.
These factors also have positive effects on unit-level performance.
- Long-term commitment. When a franchisee invests, it is difficult for her to leave the business.
- Better quality management. A franchisee becomes a long-term manager and continues to learn about the business and gains institutional knowledge about the business. This makes him a better operator because he spends years and maybe decades of his life in the business.
- Better operational quality. Franchise owners always take pride in their ownership. They typically keep their locations clean and train their employees the best the can.
- Innovation. Franchise owners are always looking for ways to improve their business because they have a stake in the success of their business.
- Franchisees outperform managers. Studies have shown that franchisees typically outperform managers when it comes to revenue generation. Based on people’s experiences this performance improvement can be notable.
15. Speed of Growth
Most entrepreneurs who have created something innovative are in constant fear that someone will beat them to the market with their own new concept. Their fear is often based on reality.
The problem with opening a single unit is that it takes a lot of time. Franchising may be the only way for some entrepreneurs to capture market leadership position before competitors enter their space. Franchising allows the franchisor financial leverage and it also allows leverage of human recourse. Because of franchising, Companies are allowed to compete with much larger businesses, so they can saturate markets before any of these companies can respond.
16. Staffing leverage
Franchisors are able to function effectively with a much thinner organization. Franchisors typically assume many of the responsibilities or else shouldered by the corporate home office, they can leverage these efforts to decrease overall staffing.
As we can see franchising has many benefits and advantages. Keep in mind that even if you get in with a major brand that doesn’t mean instant success. Apply hard work and dedication to an already tested business model and you will be on your way to successful franchise ownership.