The franchising business model is an effective way to either grow your business through leveraging economies of scale or purchase an established business model with ongoing support.
The basics of franchising are simple. A business seeking growth sells a license to franchisees in order to expand and receive royalty fees. In exchange, the franchisee is permitted to sell proprietary products or services and is entitled to ongoing support and training, use of trademarks, real estate assistance, marketing, and other resources.
This article will take a closer look at the franchise model in order to help guide your decision on whether or not it is right for you.
We advise you simply to use this as a resource to help you make a decision. Keep in mind that all forms of business ownership, including franchises, sole proprietorships, partnerships, and corporations, each has its own sets of pros and cons that should be carefully considered.
First, let’s talk about the benefits of franchising for the franchisor.
Lower Growth Risk
Franchising your business is a much more feasible method of expansion for the entrepreneur, often costing less to expand a business concept.
When you franchise a business, the franchisee provides the money needed to run the location, providing the capital needed to grow the brand.
The franchisee usually pays somewhere between 4-12% of their earnings to the franchisor in exchange for the use of the branding material, business model, and franchisee support services. This is how franchisors offset their own franchise development costs.
Attracting the Best Talent
Many hard-working and forward-thinking individuals would prefer running their own businesses for profit as opposed to accepting a salary from an employer. As a result, franchisors see an influx of great minds looking to build up the brand and nurture it like they would their own start-up.
Franchising also offers a number of advantages for the franchisee over starting a business from scratch, especially for someone with limited business experience. Franchisors offer a number of resources to their franchise partners to help ensure their success.
Typically Lower Risk
The ongoing support accessible as part of a franchise, as well as the pre-built reputation for the brand, often makes buying a franchise less risky than creating a start-up with no track record of success.
What’s more, getting a business loan from the bank can be a lot easier when purchasing a franchise. If the franchise concept has been proven successful, banks will generally regard it as a lower financial risk.
Resources and Support
Access to proprietary technology and systems will allow your business to run more smoothly. From team member websites and training modules to point of sale technologies, franchisees receive top-quality technologies and support.
Real estate assistance, marketing strategies, business coaching, and financial planning are just a few of the support services franchisors offer. No experience is necessary to purchase a franchise because the franchisor provides all the training necessary for successful business operations. Franchisees are able to benefit from the knowledge and experience of franchise experts so they can focus on operating your business.
When you franchise, you won’t have to waste money and time figuring out what works and what doesn’t- the franchisor has already done that for you.
Becoming Your Own Boss!
Buying a franchise effectively allows you to “buy” a job- one where you are your own boss. Many individuals enjoy the pride and independence that comes from business ownership. The ability to delve into a new industry through a new career path can make this an exciting opportunity for anyone ready to take the leap.
That’s not to say that franchising does not come with its own set of challenges. But for independent, self-motivated individuals, it can be just the challenge they are seeking.
Franchising Still Has Risks
Franchising is NOT a risk-free, 100% turn-key way to buy yourself a business. There is still a lot of effort you will have to put in to get your business up and running and to ensure it brings in the revenue you seek. It also may require a significant initial investment that you will need to be prepared for.
You should always do your own due diligence when researching and interviewing franchisors. The business model and plan of the franchise, the market, and your own financial preparedness will all play a huge role in your success as a franchisee. You will want to hire a franchise attorney to help you review the franchise agreement and the franchise disclosure document before making any decisions.
You should also have a strong funding plan and the working capital necessary to support your business and yourself until you break even from the initial investment.
There is an inherent risk with any business venture. Purchasing a franchise is no exception. But as long as you do your research thoroughly, prepare yourself, and utilize the tools the franchisor makes available to you, franchising offers a much faster road to ROI with much less trial and error.
Curious if Franchising is Right for You?
Check out some of these tools to assess your readiness for franchise ownership:
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