Advantages of Franchising Your Business

Franchising offers many advantages to businesses seeking to expand as compared to other business expansion methods.

Advantage #1: Franchising Requires Less Capital than Other Expansion Methods

Franchising your business typically requires less capital than other expansion methods as it enables you to expand your business using “other peoples’ money.” Franchisees invest their capital to open additional locations rather than the company.

Advantage #2: More Rapid Expansion

Another advantage of franchising your business is that it enables you to open additional locations more quickly than is typically possible under a corporate expansion program, and more quickly gain market share.

Advantage #3: Franchising Puts a “Business Owner” in Charge

Franchisees are responsible for overseeing and managing the daily operation of their franchise location(s). A new business demands a great deal of time, effort, and sacrifice. With their capital at risk, franchise owners are highly motivated to ensure the franchise business performs at the highest levels.

Advantage #4: Minimizes Contingent Liabilities

Franchising minimizes contingent liabilities associated with expansion versus other expansion methods. Responsibilities for signing leases, obtaining financing and other similar matters are the responsibility of franchisees rather than the franchisor.

Advantage #5: Increases Buying Power

For franchise companies that purchase products and services, they typically negotiate volume discounts with vendors and suppliers. Sharing all or a portion of the savings with franchisees provides higher operating margins and a competitive advantage over similar independent businesses.

Advantage #6: Increases Brand Recognition

As additional locations are opened, brand recognition increases. In the United States, customer loyalty towards recognized brands is at an all-time high. Consumers often prefer frequenting businesses they recognize by name. For an independent business, it has become more difficult to compete against companies that have significant resources to develop and promote their brand. Franchising enables individual franchise owners to benefit from the collective marketing power and brand recognition of the franchise network.

Advantage #7: Increases Advertising Spends

Franchisors typically require franchisees to spend a percentage of gross revenues or a set amount on local advertising. In addition, franchisees may be required to contribute a percentage of their gross sales or a set amount to a “Brand Fund” established and administered by the franchisor. This enables the franchisor to develop advertising campaigns for franchisees and conduct advertising on a regional and/or national basis for the benefit of the franchise network.

Advantage #8: New Revenue Streams are Created

Franchising typically creates additional revenue streams for franchisors, including:

• Initial Franchise Fees
• Franchise Royalty Fees
• Advertising & Marketing Administrative Fees
• Services provided to Franchises
• Sales of Products & Supplies to Franchisees
• Training Fees
• Sales of Promotional Items
• Rebates from Suppliers

Advantage #9: Provides a Higher Valuation of the Individual Franchise Units

The valuation of franchise units is often higher than similar independent locations. This is due to the lower perceived risk for a potential buyer as a franchise system offers a proven business model, brand recognition, ongoing operational support, greater buying power, and local advertising programs.

Advantage #10: Ensures a Consistent Brand Presence

Unlike other business growth options, franchising gives you control over your brand. Dealers, distributors, or licensees can and typically do horrible things with brand assets and messaging. With franchising, you control the brand from the top-down so that every customer experiences the brand as consistently and constantly as possible. Only franchising allows you to specify at a very granular level, how and when the brand assets can be deployed. This removes the risk of rogue marketing.

Contact us today or take our 15-question quiz to see if your business is ready for business expansion through franchising.