There are many benefits to franchising a business. Many successful companies have chosen to franchise their business because franchising provides the opportunity for maximum market penetration and greatly reduced financial risk to the franchisor. At the same time, a franchise system permits the franchisor to maintain significant control over the individual franchise locations thereby protecting the brand. Franchisees benefit by investing in a proven system of operation that eliminates many of the pitfalls associated with starting a business from scratch.

When franchising a business, companies are required to comply with the Federal Trade Commission (FTC) Franchise Rule. The FTC defines a franchise as “ … Any continuing commercial relationship or arrangement, whatever it may be called, in which the terms of the offer or contract specify, or the franchise seller promises or represents, orally or in writing, that:

1. The franchisee will obtain the right to operate a business that is identified or associated with the franchisor's trademark, or to offer, sell, or distribute goods, services, or commodities that are identified or associated with the franchisor's trademark;
2. The franchisor will exert or has authority to exert a significant degree of control over the franchisee's method of operation, or provide significant assistance in the franchisee's method of operation; and
3. As a condition of obtaining or commencing operation of the franchise, the franchisee makes a required payment or commits to make a required payment to the franchisor or its affiliate.”

In 2025, franchising is expected to add approximately 210,000 jobs, growing at a rate of 2.4%, raising franchising employment to more than 9 million jobs. In addition, total franchise output is projected to exceed $936.4 billion in 2025, increasing by 4.4%, from $896.9 billion in 2024. Franchising has proven to be an extremely successful expansion method for many different types of businesses. Now more than ever, individuals who desire to own their own business are turning to franchising rather than attempting to start a business on their own. They seek to minimize their risk by purchasing a proven system of operation that typically enables the franchisee to operate a profitable, successful business much sooner than a traditional start-up.

When franchising a business, the most widely used model is called a “business format” franchise. Franchising a business under this model involves the “Franchisor” granting a “Franchisee” the right to market goods and/or services in a specified territory using the Franchisor’s trade name and system of operation in exchange for payment of a franchise fee and typically, ongoing royalty fees that may be a set amount or based on a percentage of the franchisee’s gross sales. The franchisor dictates processes and procedures franchisees must follow to develop their franchise and during the operation of the franchise business. To assist franchisees in starting their business, franchisors provide various types of assistance and support, which may include site selection assistance, construction assistance, initial and ongoing training, local advertising programs, initial and ongoing support, sources of supply and other similar assistance.

When considering whether to franchise a business, it is important to recognize that franchising offers tremendous advantages over the high capital costs associated with corporate expansion and the infrastructure and employee issues that often accompany this expansion method. The problems associated with managing, recruiting, training and retaining a qualified workforce as well as the responsibilities for the day-to-day operations of individual locations are dramatically reduced under a franchise system. Additional benefits of franchising a business include cost savings that can be achieved by the franchisor and franchisees from volume purchasing, and increased advertising spends by franchisees that increases brand recognition.

The benefits to a Franchisor in having an “owner” rather than a hired manager overseeing additional locations cannot be understated. A franchisee is much more motivated than an employee to ensure that the business grows and operates efficiently and profitably, as it is their capital at risk. This solves a major problem experienced by most companies today related to hiring and retaining qualified and motivated employees when expanding the company’s footprint. As previously stated, under a franchise system, day-to-day operation of the franchise business is the responsibility of the franchisee. Consequently, the franchisor is freed up to focus on overall business development; business processes and procedures; product and/or service research and development; regional and national advertising; franchise training, support and communication; and providing administrative and/or technical support to franchisees.

For companies that are serious about developing and growing a successful franchise system, it is advisable to work with qualified franchise consultants and attorneys with the experience and expertise required to properly establish the franchise operation. They can quickly point out the benefits of franchising your business.

If you would like to learn more about FranSource’s franchise development process and services, please contact us for additional information.