There are three different ways you can start a business: Create one from scratch, buy an existing business or franchise. Even though research shows that almost 80% of new businesses survive the first year, franchising still seems like a more appealing business model.
Taking up any of these options is a risk, and you never know what could happen. However, franchising comes up as a calculated risk compared to the first two options. But what makes it such a viable option?
In this article, we’ll take you through some of the top benefits of franchising. With this information, you’ll be in a better position to make informed decisions on the next move of your career.
Franchising 101: The Basics of Franchising
A franchise is a commercial relationship between an owner of a business and the individual starting a franchise of that business. The business owner is known as the franchisor and the individual as the franchisee. To have the best franchise business, you need to research the most suitable franchise for you.
The franchisee uses the trademark and business model of the franchisor and sells the products or services the franchisor provides. Franchising is known as the fastest growth vehicle ever created, and for excellent reasons.
The franchising industry employs over 21 million people and generates over $2 trillion in economic activity. The food and beverage industry has the most successful franchises, holding seven positions in the top 10 franchises today. Now, let’s get down to the benefits of franchising and why you may want to consider it.
Franchising Gives You Access To Capital
Cash flow is the number one reason why businesses fail. If you’re worried you may not have enough of it to start and scale a new business, then franchising is an excellent option. Franchising comes with numerous benefits as an alternative form of capital acquisition.
The most significant benefit is that it will allow you to grow and scale your business without any risks of debts. You’ll be able to run your business without the cost of equity. The franchisee will provide all the capital you require to open and operate the branch.
The franchising model will allow you to grow your business using resources from others, which leaves you with no barriers to your goals. Even better, the franchisee will also sign the list and commit to various other things that will allow you to expand without contingent liabilities. As a franchisor, this is a lot of eliminated risks on your part.
You Get a Blueprint of Success
Even when you have the best business idea, getting it into the market and capitalizing on it is not an easy feat. When it comes to business, timing is absolutely everything. One of the most significant benefits of franchising is that it gives you a blueprint to success and allows accelerated expansion.
It’s so much easier to saturate tertiary and primary markets with franchise locations. This is because the franchise has already performed the necessary leverage when it comes to personnel and finances, among others.
Franchising Gives You a Brand Name
This is by far one of the biggest benefits of franchising. In today’s business world, brand recognition is of utmost importance because customers are loyal to brands. Your target market already knows the brand, the products, and the services to expect.
The franchisor will allow you to use their trademark, business logo, and brand name. This means you will share in their reputation, credibility, fame, and everything else they come with. The franchisor stands to expand the business, which father builds the brand name and the credibility of the business.
This further minimizes the financial risks associated with opening more branches. Beyond this, you’ll be buying into the power of the franchise, especially if it already has other entities doing business under that banner.
Franchisees benefit from the negotiating power of parent companies. You’ll have an avenue to expand your leverage while mitigating risks.
Motivated Management for a Franchisor
Finding and retaining great managers is a major challenge for most businesses. You could spend months looking for the best talent to fill your managerial positions, only for them to leave after training. They could be hired by some of your competitors, which can be such a bummer.
It’s usually not easy to find people who are completely committed to the business. However, one of the most significant benefits of franchising is that you’ll substitute an owner for a manager. As a franchisor, finding a franchisee can be incredibly beneficial for your business.
The franchisee will be the owner of the branch, which means they will be fully invested in growing the franchise. It’ll be hard for them to walk away and will offer better quality management and improved operational quality. Given that they have already invested in the business, they’re also likely to bring in innovation and will outperform any manager you could have hired.
Accelerated Business Growth
Starting a business from scratch takes time, and a lot of people are usually afraid that others will capitalize on the market before they do. Franchising opportunities can be an excellent way to ensure that you capture the market before your competitors encroach on that space.
Franchising will allow the franchisor to have financial and human resource leverage. It’ll give them an opportunity to compete with larger businesses before they fully saturate the market.
One of the often-overlooked benefits of franchising is an increase in valuation for the business. You stand to gain high profitability, fast growth, and gain significant organizational leverage. This will place you in a position where other businesses value the franchise at high multiples.
Franchising Offers Support
As a franchisee, one of the top benefits of franchising is there ongoing support you stand to gain from the franchisor. Most franchises train franchisees on how to run the business to minimize any chances of failure.
To maintain the high standards of the business. There needs to be consistency across the board, and the brand must retain or grow its reputation. Apart from training, you’ll also get marketing support because the parent company is to get the word out there about the new business.
That parent company may do whatever it takes to get customers to the franchise in order to start generating revenue as soon as possible. In the long run, the franchisor will offer continued support, even when you have the freedom to run the franchise.
Benefits of Franchising: Reasons to Consider This Business Model
Have you been thinking about franchising? Maybe you have found some incredible franchise opportunities?
Listed above are some of the top benefits of franchising before you venture into it. Understand what you stand to gain and why this could be one of the best ideas you come up with.
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