Why Franchise? Heard about franchising and are wondering what the benefits might be for your business? Here are seven good reasons for franchising your business.
Lower Cost
Unlike employees, franchisees make an initial payment in return for becoming a part of your business. They then continue to pay you a percentage of their revenue, throughout the duration of their Franchise Agreement. This means that the costs of setting up the franchise, training staff and launching the business are all covered by the franchisee rather than by the parent organisation. Similarly, once the business is up and running, it is the franchisee who will be rewarding you with a monthly income, rather than being paid by you as an employee. For these reasons, the franchise system can provide a very cost-effective route for business development. This is only provided that the original business is successful. Moreover that the franchisor is willing to invest sufficient time and money into creating an attractive franchise opportunity.
Simpler Management
Franchisees are themselves responsible for the day-to-day running of their business units. They must do this strictly in accordance with the Franchise Agreement and Operating Manual. As franchisees have invested their own hard-earned money, they do not require the detailed level of management which would be needed for employees. The objectives of the franchisee and of the franchising organisation are, therefore, very closely aligned. The success of one depends to a great extent on the success of the other. As a result, the franchise network requires only a simplified and relatively low-cost management system. This is typically based on the close monitoring by the franchisor of the key performance indicators (KPIs) and the provision of motivational leadership.
Faster Expansion
The benefit of slower costs and a simplified management structure usually means that franchised networks can be expanded more quickly. Franchising is all about replicating a clear and successful business formula. Provided the franchisor is prepared to make a reasonable investment in marketing nationally, the brand can quickly be expanded nationwide. This will in turn generate increased sales volumes and stronger purchasing power. This can also mean that the network can command greater discounts from its suppliers.
Better Market Penetration
Franchisees are normally well established as part of the local community, either on a personal level or as a result of their past business activities. Therefore, they are likely to be knowledgeable about the area. This can give them a very significant advantage in gaining new business for the franchise at a local level. They will generally live within the franchise territory, be known there and will be seen as having made a permanent commitment. These are all attributes which generally do not apply to company employees. Conversely they will be of enormous value in helping franchisees to penetrate their local market.
Greater Commitment
Franchisees have invested in their business and know that they can benefit directly from its success. Logically, for that reason, their commitment will be much greater than that of employees. This is because employees have made no such financial investment. Of course, they are guaranteed to receive at least a basic wage at the end of each month, regardless of performance. However, money is not the only driving force for better performance.
Since the business is their own, franchisees will take real pride in the service which they provide. They will ceaselessly strive to exceed the expectations of their customers. This commitment will also reflect in their loyalty to the franchisor’s brand. After all, it is also the franchisee’s brand, and they are intent on building up a business which can be sold on for profit at some future date. Of course, not all potential franchisees are so strongly motivated. Nor do all have the necessary ability to succeed – so the franchisor’s initial selection process must be rigorous.
Less Recruitment
On purchasing their franchise, the franchisees are really taking a decision to stick with their chosen business for the long term. If they leave prematurely they are unlikely to realise the full potential of their franchise investment and they may possibly lose everything. Even when the time is right to sell, it is their own responsibility to find a suitable buyer. This means that the franchising organisation is generally freed from the time-consuming and tedious task of continually recruiting and re-recruiting managers for its business units. As for recruitment of staff within the franchises themselves, the responsibility for this task clearly rests with the franchisee, not the franchisor.
International Potential
If you have longer-term aspirations to expand your business internationally, the franchise system again has many advantages. Using a system called Master Franchising, you can quickly and simply replicate the whole of the your UK franchise model in another country. This leaves the Master Franchisee to adapt the model to the local market – its language, business customs and legal requirements. This is a very effective method of expanding a business overseas without any need to create subsidiary companies or branches in your chosen countries.
Franchise FAQS
What is a franchise business?
A franchise business is essentially a legal arrangement where an established company, known as the Franchisor, seeks to grow by partnering with independent individuals or entities, called Franchisees. This relationship is formalised through a Franchise Agreement, which grants Franchisees the right to use the Franchisor’s brand, trademark, and proprietary business systems. In exchange, Franchisees must adhere to specific operational guidelines and share a portion of their revenue or profits with the Franchisor. This model allows the Franchisor to expand their business footprint while providing Franchisees with a proven business framework.
Looking for an even more in-depth answer? Visit our FAQS page.
What are the common franchise sectors?
Almost any type of business can be franchised, depending on the viability of the business model itself, so don’t be discouraged if your business isn’t in a traditionally franchised sector; this could actually mean less competition for new franchisees. The most commonly franchised industries include Food and Beverage, which covers fast food, dining, and specialty food outlets; Retail, including stores selling a range of products from clothing to home improvement; and Health and Fitness, which features gyms and wellness centres. Education and Tutoring, Senior Care and Home Services, and Automotive services are also prominent sectors, each catering to specific market demands. Additionally, Business Services, Real Estate, Personal Care, Pet Care, and Children’s Activities offer diverse franchise opportunities across various consumer needs and preferences.
Read more about each franchise sector.
Watch our seminar on ‘How To Successfully Franchise’ – filmed at The National Franchise Exhibition 2017:
Click here to listen to a podcast with AFC’s Nick Williams explaining the key points to consider if you are thinking of franchising your business.
Click here to book your seat at one of our FREE ‘How to Franchise’ Seminars.
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Why franchise? We are always happy to talk no matter how ready (or not) you think you are to franchise. Complete our online enquiry form (you can even leave us a message specifying a good time to call you) or you can call us directly on 0330 016 0028.