When entering the business world, a lot of potential entrepreneurs are faced with a peculiar dilemma – should they buy a franchise or start their own business. While starting an original business provides you with a better opportunity for creative development, more freedom and a chance to create your own legacy, the benefits of buying a franchise are quite numerous as well. Buying a franchise provides you with greater security, a marketing-based head-start, better financial projection early on and much, much more. With that in mind and without further ado, here are the top 10 advantages of buying a franchise that you need to take into consideration.
#1. Initial capital
The first thing you need to take into consideration when it comes to buying a franchise is the issue of initial capital. You see, it takes quite a bit to start your own business and it’s often far more affordable to simply buy a franchise. This is a method that financially favours both the franchisor and the franchisee. The franchisor gets to expand without spending their own capital, seeing as how the financing falls down to the franchisee. As for the franchisee, they have an easier time securing a loan, due to the fact that the bank is taking less risk. After all, a franchise already has a proven brand name, as well as a business model to stand behind.
Another thing worth mentioning here is the fact that starting a franchise is a lot easier to budget. The majority of franchises have their standards, rules and regulations. For instance, a certain franchise will insist on a certain quality of equipment, buying supplies from the same suppliers (at a pre-determined and pre-negotiated price), etc. Even when it comes to renting out the place, you may have to follow certain standards in terms of size and logistics. All of this makes it easier to figure out a total cost in advance.
#2. More efficient management
Another thing you need to take into consideration is the managerial structure of the business. A franchisor can enjoy the benefit of knowing that each franchisee is also a regional manager for a certain area. This means that the wellbeing of the franchise is in their own direct best interest. As a franchisee, you get to be the person in charge and operate with a huge level of autonomy, naturally, within certain boundaries set by the franchisor.
Other than this, the benefits are quite numerous. Seeing as how each franchisee takes pride in the ownership of the business, they usually try harder. Since they have other franchisees to compete with, they tend to stay highly motivated over the course of years. If a franchisor decides to further incentivize this behaviour, they might further enhance this aspect. Needless to say, this is something that helps immensely with the, overall, pace of innovation. In this way, the entire franchise and individuals running it always remain ahead of the curve.
#3. Enhanced hiring efforts
One of the most important things when it comes to franchising is the fact that it helps you out immensely when it comes to staffing. You see, the majority of franchises have certain standards when it comes to customer relations and quality of doing business, as well as business practices, in general. The way in which they secure this is by sending trainers of their own in order to help them get started. This means that instead of having to worry about the early training of your staff, you get some outside help to deal with it.
Most importantly, employees tend to be more drawn to franchises, seeing as how there’s so much potential for future growth. The business model is solid and proven, which provides them with ample opportunities for learning. Provided that they decide to move, they have great chances of transferring to another franchise, seeing as how they’ve already passed the training. Other than this, the fact that franchises fail less often than original businesses, they have higher potential job security. This also makes for higher employee retention, which is a major boon for any aspiring business.
#4. The credibility
Reputation is probably the most valuable resource in the business world. The problem, however, lies in the fact that it doesn’t come overnight. Fortunately, buying a franchise is a way for you to circumvent this. It is like borrowing someone else’s credibility since an ordinary customer usually can’t tell a difference between franchises and expects the same level/quality of service everywhere. For instance, if you were to start your own tea place, smart franchising will provide you with some instantaneous recognition amongst your target audience.
Another thing you need to take into consideration is the fact that the credibility of your business tends to be tightly intertwined with the concept of branding. Choosing particular brand shapes, colours and logo are vital in establishing yourself in the minds of your audience. The biggest problem, however, lies in the fact that making the right choice requires you to possess an in-depth knowledge of psychology behind consumer behaviour. By buying a franchise, you can rest assured that someone has already made these tough choices. In fact, you can already tell that these aesthetic marketing decisions are already yielding results.
#5. Penetration of a new market
As we’ve already mentioned, selling franchises is, by far, the simplest and the most effective way for a business to penetrate new markets. Franchisees are more competitive than traditional regional managers and the cost falls completely on them. What franchises do is sell their intellectual property and help guide their new partners in these matters. When it comes to franchisees, they don’t really have to start from scratch. The success of the franchise in other neighbourhoods, cities or regions already works in their favour. They get to benefit from the franchise brand’s renown, which allows them to outcompete their counterparts in original businesses.
Territorialism of the franchising business model is another reason why so many entrepreneurs are interested in buying franchises. You see, by buying a franchise, you’re gaining an exclusive right to do business in that particular area. This means that no other franchise (within the same brand) can open their business in your nearest proximity. Sure, other brands are able to open for business in your proximity but even they will think twice. A presence of a well-known franchise increases competitiveness in the area. This alone is able to turn things further in your favour.
#6. Lower risk
A huge advantage of buying a franchise lies in the fact that you get someone else to experiment for you. Once they are sure that the business model in question is solid, you get to buy it as a part of the franchise. As Prussian general Helmut von Moltke once said “No battle plan ever survives first contact with the enemy”. Fortunately for you, by exploiting this business model, you don’t get to be the one who has to find this out the hard way. Still, this doesn’t mean that you have all your troubles solved in your stead. It just means that you get a slight head-start but this is usually more than enough help.
The statistics themselves speak strongly in favour of franchises. Now, while 2020 is overall bad, for obvious reasons, the thing is that franchising still seems to be quite strong. Last year alone, franchise establishments saw remarkable growth and it is expected that this trend will carry on in the nearest future, as well. Still, the success of each individual franchisee is not merely affected by the state of the market. There are so many individual factors that affect the chance of success or failure.
#7. You’re not on your own
Another major perk of buying a franchise is the fact that you’re not on your own. You see, a franchisor may help you select and train your staff. They may provide you with assistance when it comes to outfitting the place. In some scenarios, franchisors were even willing to lease out equipment or give out loans to franchisees. This provides them with an even greater head-start. Even if there’s no material and logistical incentive, the advisory role alone can be quite valuable.
From the logistical perspective, you gain a lot more leverage as a franchisee than as an individual business. There are numerous occasions where all the franchises get supplies from the same source. This usually results in them getting a far better price, seeing as how the franchise has the leverage to negotiate more favourable terms that all of their franchisees get to benefit from. The quantity of supplies acquired by the entirety of the franchise gives them all the leverage they need and ensures the situation with an offer that they just can’t refuse.
#8. Attracting financing
Getting enough money to get started is not the only thing necessary in order to run a successful business or a successful franchise. Sooner or later, you may encounter a need to expand, innovate or merely find yourself with some cash flow problems. The latter is something that happens even to those with profitable, well-organized businesses. So, your ability to provide your venture with adequate capital injection, in its time of need, may determine so much. As we’ve already mentioned, people are just more likely to invest in a franchise.
#9. Advanced valuation
The next thing worth taking into consideration is the value of your business. Let’s say that you want to sell a business after it’s been successfully running for a while. With a franchise, you’ll get to the desired figure a lot sooner than you otherwise would. Now, it’s worth mentioning that this is something that the majority of entrepreneurs do out of necessity. In other words, it’s not really something that you plan for when starting out. Still, it’s something worth keeping in mind.
Naturally, you can’t sell a franchise without the input from the franchisor. After all, their word here is final. This is one of the rare disadvantages when compared to running an original business. Nonetheless, the growth in question is definitely scalable and, as such, something that you can project and plan for in advance. Knowing how to map out your future growth is incredibly important. Speaking of which…
#10. Predictions and projections
When trying to predict how your business will do in the future, it’s often for the best to have something to base your predictions on. Ideally, you would have a business of a similar business model, within the same industry, operating in the same or similar area. It’s more than clear how being a franchise makes this easier. All you have to do is look for a neighbourhood similar to yours and see if there’s a franchise of your brand operational. From this point on, you can even contact the people in charge and share your concerns with them. Seeing as how you’re not direct competitors, there’s no reason why they shouldn’t lend their hand.
Still, you need to understand just how important it is to stay realistic and not expect the same success (or ill-fate) to transfer on a 1:1 ratio. The fact that the neighbourhood is of a similar size, doesn’t mean that its demographics are the same. If demographics are the same, this doesn’t mean that the area is as competitive. The more factors you take into consideration, the more accurate the depiction will be. Hiring a financial expert to help you out with this is also a great idea.
If we had to choose a single phrase in order to describe all of the above-listed benefits it would definitely be – greater reliability. It’s easier to predict the course of a franchise, it’s easier to stay competitive, raise funds and plan your expansion. The chances that you’ll fail are lower and a chance that you’ll be left alone to fend for yourself in the business world is nearly nonexistent. While this may not seem like that much, the truth is that, when it comes to the business world, reliability is completely invaluable.