Franchising provides benefits to both the Franchise Owner and the Franchisor. If you have a robust business model and are considering expanding, you may be interested in learning about the advantages of a franchise.
Believe it or not, the current pandemic is also expected to increase the benefits of franchising by creating additional opportunities in the marketplace that foster the perfect environment in which to launch a franchise operation. We will cover many of the benefits of franchising, both typical and pandemic-related, below.
Common Advantages of Franchising
1. Cash Flow, Risk, and Return
Franchise Owners are required to invest their money to fund the new endeavor and to manage the associated risk. Franchisors, on the other hand, require very little out-of-pocket investment, which frees up your cash. And that’s always a positive! Also, because your investment is insignificant compared to that of the Franchise Owner, your investment is substantial. You reap the benefits without assuming the associated financial risk.
2. Reduced Contingency Liability
It is generally the Franchise Owner’s responsibility to sign leases, acquire financing, and perform additional tasks that involve risk. Therefore, the franchisor can enjoy the benefit of expansion with limited direct and contingent liability. The same is often true with the vicarious liability that comes with employee issues that put the business at risk for sexual harassment, workplace injuries, EEOC violations, and more.
3. Lean Start-Up to Scale-Up
Scaling up is achieved far faster and without the expensive capital investment on the franchiser’s part due to the Franchise Owners’ ownership and accountability. Your company expands without the increased overhead costs of additional employee hires and the other expenditures previously discussed. Also, Franchise Owners tend to operate at more significant profit margins for those that are Franchise Owner-controlled as opposed to company-controlled. Franchise Owners who invest their own money and assume a more significant risk are more motivated to engage and put forth the effort required to achieve success. The same remains valid with international expansion.
4. Better Business Performance With Less Oversight
With the right onboarding and training process, Franchise Owner-owned units often perform better from a profit margin standpoint than company-owned. Still, they frequently have tighter operations and excellent quality control. This allows you to maximize your bandwidth and focus on other areas. Further, the franchisors tend to stay longer than those that run company-owned units.
5. Franchise Marketing and Brand Awareness
Franchise Owners often contribute to a common marketing and advertising fund over which the franchisor manages. This allows you to maintain control of the brand and increase awareness while leveraging Franchise Owner capital. You can direct the overall branding effort and watch your company grow without substantial investment, or you can pursue franchising with company-owned growth and combine strategies.
Business Opportunities Arising From the COVID-19 Pandemic
Recent changes in the economy and job market due to the COVID-19 pandemic present additional advantages of franchising. For instance, many people have lost jobs, or have quit or retire early because they want to be more in control; business ownership allows this. Some of these people have retirement accounts and other investments that provide the funds needed to pursue such an endeavor.
While it is true that some owners have gone out of business due to extended business closures, this creates more inventory in the commercial real estate market, which means there are deals. The Small Business Administration will want to support entrepreneurs to get the economy humming again, so incentives should be expected there. Besides, the pandemic breeds innovation as business models shift from in-person to mobile or incorporate activities such as curbside service. It is the perfect opportunity to take advantage of the unique opportunities that come with an unfortunate situation. Businesses such as pet care, education, and childcare are all positioned for disruption and innovation.
Business Growth Opportunities & Franchise Development with RainTree
The advantages of a franchise are numerous, and current events can actually contribute in a positive way. If you want to hear from some of our customers about their experience, you can do that here. If you are ready to take the next step, contact us. Let’s start a conversation about what makes sense for you.