Benefits of Investing in a Franchise Business
There are numerous benefits in a franchise business. Franchising offers benefits for both franchisors and franchisees. Expanding the brand more rapidly with other people’s money is one of the primary benefits for franchisors. The initial franchise fee and royalties, allow franchisors to build their brand stronger without worries. The fees and ongoing royalties are used to manage operations at corporate offices, training&support to franchisees, market and advertise the brand, improve the quality of products and services they offer, and build the brand in the marketplace.
Some of the major franchise benefits are mentioned below:
1. A Proven Business Model-
Having a proven and trusted business model automatically gives you a sense of confidence and motivates you to move forward. It significantly reduces the risk of business failures as the brand already has faced all the main challenges in the initial days such as difficulties, adverse situations, made mistakes, corrected them, and has gained experience. The risks are lesser and the probability of returns is higher. One might expect that by acquiring a franchise, a franchisee will avoid many mistakes, which have already been made by the franchisor and other franchisees. This gives additional trust in the franchise and business which is a good thing for both the franchisor and buyer.
2. Established Trademark of the Franchisor-
As you go with the franchise business, you receive a well-known and trusted franchise trademark. It may attract consumers without any major additional efforts of the franchisee because of the trust, the brand has made over the years. Instead of buying a franchise if you go for your own business from scratch, then you will need to create and promote its new brand through marketing and advertising from the ground, being a new brand to the market and consumers will take time to attract them.
3. Developed Technologies, Work Methods, and Supply Network-
After indulging with a franchise network, the new franchisee very quickly adopts knowledge, methods, technologies created by the brand, and current franchisees from the very establishment of the franchise. A new franchisee will be able to avoid common mistakes at the business start. It receives access to already trusted suppliers and developed work methods. All this reduces the risks of bankruptcy and potential damage, which could occur due to business inexperience. It also highly decrease the time needed for launching a business unit and achieving operational excellence.
4. The benefit of economies of scale-
By joining an already proven and tested franchise system, you get an opportunity to use the benefits of economies of scale in the areas of products and services’ supply, marketing, scientific research, technological advancement, and other important processes. In non-franchised business systems, entrepreneurs would not have the opportunity to get the same profits as they will receive by joining a franchise network.
5. Training and Assistance Provided by the Franchisor-
Most people, when they start a business, face issues as they don’t know how to act in different scenarios. They don’t have the experience in handling a respective business and process management. If it were possible for them, they will acquire knowledge from experienced entrepreneurs and contact them for advice on everyday business issues just to be on the safe side. A franchisor is directly interested in the franchisee’s success and it controls and constantly supports the franchisees. Franchisors use various measures to support their franchisees, including continuing assistance during the whole process, giving advice on any business-related issues, providing continuous training, and granting access to comprehensive operations procedures, which makes the organization and management processes much easier for the franchisees.
6. An easier way to attract financing-
Difficulties in the attraction of initial investments to start a business are quite common to any entrepreneur. Although, an entrepreneur may attract funds to start a business from banks or investors, however, in real life it is not easy because of strict requirements and risk mitigations measures, applied by creditors, which might become an insurmountable obstacle for the prospective entrepreneurs. In the case of franchise acquisition, these risks are lower. Actual financial indicators of other operating franchisees as well as the franchisor’s background and reputation might convince lenders or investors to grant financing on softer conditions.
It’s not that simple sometimes, not all of the abovementioned benefits of buying a franchise business comes automatically with acquiring any franchise. It is your primary responsibility to make sure that the specific franchisor, will provide sufficient value for money paid by you. In addition, each prospective franchisee must pay attention not only to benefits but also to potential pitfalls associated with acquiring a franchise.