Starting a franchise is a lot like cloning a successful business and opening it in your own territory. The only real differences include the motivation and talent of the new owner (YOU) and the opportunity presented by the location in which you decide to open the business.
The following benefits provide a good rationale for starting a business by purchasing a franchise. These must be balanced by the costs or disadvantages.
It is important to remember that not all franchises are created equal. Not all franchises have the benefits below. If they do have them they may not be sufficiently developed.
The Franchise Search Group will be able to help you understand each benefit and how they differ in each franchise company.
Most business experts agree that a franchise operation has a lower risk of failure than an independent business. The statistics on this vary depending on the definition of failure. Whatever statistics are used, they consistently suggest that a franchise is more likely to succeed than are independent businesses. The Franchisor can provide you with a proven business model – one that has worked for others.
Established product or service
A franchisor offers a product or service that has sold successfully. An independent business is often based on both an untried idea and operation. Three factors will help you predict the potential success of a franchise. The first is the number of franchises that are in operation. The second predictor is how long the franchisor and its franchisees have been in operation. A third factor is the number of franchises that have failed, including those bought back by the franchisor.
Experience of the franchisor
The experience of the franchisor’s management team increases the potential for success. This experience is often conveyed through formal instruction and on-the-job training.
Proven system of operation
An attractive feature of most franchises is that they have a proven system of operation. This system has been developed and refined by the franchisor. A franchisor with many franchisees will typically have a highly refined system based on the entire experience of all these operations.
Efficiency in operation
Franchisors already have in place operating and management efficiencies that benefit new franchisees. Operational standards already in place also control quality and uniformity among franchisees.
Operating Systems and Procedures
A franchisor provides operating systems and procedures to a franchisee. These include the areas of sales & marketing, advertising, accounting, personnel, customer service, facilities, etc. An individual not experience in these areas will be able to operate the business utilizing the operating systems and procedures. An individual with experience in these areas may not be familiar with how to apply them in a new business. The franchisor helps a franchisee overcome this lack of experience.
Franchise companies provide you with the training you need to become successful. After all, they have a vested interest in you being able to run the franchise profitably and really want to see you succeed!
A franchisor provides ongoing support to franchisees. This may include phone, webinar, and field service personnel. A franchisor may have regional and national conferences to provide ongoing training and introduction of new products, services or systems and procedures
Other franchisee support
The ability to communicate with other franchisees is paramount to an individual’s success. You can communicate with other franchisees that are at your same level and discuss your experience. You can communicate with franchisees with much more experience and learn directly from their past experience.
Group purchasing power
Most franchisors have the opportunity to purchase their goods, supplies, advertising & marketing materials at reduced rates because they buy in bulk. Right away these savings can be passed back to each franchise unit and provide a competitive advantage in the marketplace. To protect this benefit, most franchise agreements restrict the franchisee from purchasing goods and supplies through other sources.
It can take years for a business to successfully build a well-recognized brand that helps drive sales and provide a competitive advantage over smaller competitors. Brand awareness can make or break a business. Consumers buy things that they are familiar with and work with companies they know and trust.
Proven Business plan
Running a successful business is similar to learning a math formula and following its rules and laws time and time again. Through years of experience franchise companies know what works and will teach you their formula for success.
Most franchisors help franchisees develop a business plan. Many elements of the plan are standard operating procedures established by the franchisor. Other parts of the plan are customized to the needs of the franchisee. A sound business plan will help the franchisee obtain financing.
The most difficult aspect of a new business is its start-up. Few experienced managers know about how to set up a new business because they only do it a few times. However, a franchisor has a great deal of experience accumulated from helping its existing franchisees with start-up. This experience will help reduce mistakes that are costly in both money and time.
A franchisor typically offers several marketing advantages. The franchisor can prepare and pay for the development of professional advertising campaigns. Regional or national marketing done by the franchisor benefits all franchisees. In addition, the franchisor can provide advice about how to develop effective marketing programs for a local area. This benefit usually has a cost because many franchisors require franchisees to contribute a percentage of their gross income to a co-operative marketing fund.
Assistance in financing
It is possible in some cases, to receive assistance in financing a new franchise through the franchisor. A franchisor can often make arrangements with a lending institution to lend money to a franchisee. Lending institutions find that such arrangements can be quite profitable and relatively safe because of the high success rate of franchise operations. The franchisee must still accept personal responsibility for the loan, but the franchisor’s involvement usually increases the likelihood that a loan will be approved.
Franchising provides individuals with strategies to grow their business. This ranges from optimizing the potential of a single franchise to the ability to own multiple franchise units. An area development franchise is another strategy for growth; the franchisee buys a protected geographic area which allows for expansion of units over a predetermined growth plan. Finally, there is the ability to become a master franchise where the franchisee would own a large geographic area and would develop the area by offering franchises to other individuals. The master franchisee would receive a portion of the franchise fee and the ongoing royalty of each developed franchisee.
Due to the above benefits, the sale of a franchise is likely to be much more attractive to a potential buyer than a typical existing business. This will most likely bring higher sales prices for the franchisee than a like business that is independently owned.