According to the article “What is Franchising” by Robert Gappa, on the Franchise UPDATE Web site, there are over 3,500 franchise systems in the United States with over 750,000 units. This comes out to about 4.5 percent of all businesses and 43 percent of all retail and service revenue in the United States.
The biggest advantage of franchising appears to be the reduction of risk you will be taking for your investment. This is because franchises typically get up and running faster, and are profitable more quickly. This can be a result of better management as well as a well-known name. According to the Small Business Administration (SBA), most small businesses fail because of weak management. It is in this area that the franchising option shines the most. When you use the Intellectual Property, the management know-how of a franchise, you are using that managerial know-how.
You also usually get better deals on supplies because the franchise company can purchase goods and supplies in bulk for the entire chain, and then pass that savings on to you and the other franchise units.
The often-instant recognition from customers is also a big plus. Customers are dealing with a “known” rather than an “unknown.” Think about it: If you are driving through a town you’ve never visited before and have the choice of a “Billy Bob’s Fried Chicken” or a “Kentucky Fried Chicken,” which one are you more likely to stop at? Until you know that Billy Bob’s is THE place for fried chicken, you may not want to take the chance.
For the customer, the advantages of a franchise include the comfort of knowing what you’re getting. You know that the quality of the product or service at one location will be comparable to that of another location. You know what they have and you already know what you like about it. The questions for you as a potential franchisee are: Are you looking for something that is uniquely yours? Or do you simply want to run the show, regardless if it’s by someone else’s rules?
A list of 18 advantages of Franchising over stand-alone forms of small business:
- The Franchisor provides detailed training.
- The Franchisee has the incentive of owning their own business and operating that business as a franchisee of a recognized Brand with a successful track record, and with the additional benefit of the continuing assistance from the Franchisor.
- The Franchisee benefits from operating under the name and reputation (brand image) of the Franchisor, which is already well established in the mind and eye of the public.
- The Franchisee will usually need less capital than they would if they were setting up a business independently because the Franchisor, through their pilot operations and buying power, will have eliminated unnecessary expense.
- The Franchisor provides the advice and/or help in identifying suitable trading locations or operating territories for the Franchisee.
- The Franchisor helps the Franchisee obtain occupation rights to the trading location, comply with planning (zoning) laws, prepare plans for layouts, merchandizing and refurbishment, and provide general assistance in calculating the correct level and mix of stock for the opening launch of the business.
- The Franchisor trains the Franchisee (and very often, the Franchisee’s staff as well) in all areas of the business such as; administration, financial analysis, business planning, business controls, marketing, promotion and merchandising.
- The Franchisor may negotiate better rates of finance, or more favorable conditions, for Franchisees with financial institutions.
- The Franchisee receives the benefit on a national scale (if appropriate) of the Franchisors advertising and promotional activities at a lower cost than if they were to attempt such marketing themselves.
- The Franchisee taps into the bulk purchasing power and negotiating capacity made available by the Franchisor by reason of the size of the franchised network.
- The Franchisee can call on the specialized and highly-skilled knowledge and experience of the Franchisor’s head office organization, while remaining in their business.
- The support and benefits provided by a Franchise system greatly reduce a Franchisee’s business risks.
- The Franchisee has the services of the field operational staff of the Franchisor who are there to assist with any problems which may arise from time to time in the course of business.
- The Franchisee has access to use of the Franchisor’s patents, trademarks, copyrights, trade secrets, and any secret processes or formulae.
- The Franchisee has the benefit of the Franchisor’s continuous research and development programs, which are designed to improve the business and keep it up-to-date and competitive.
- The Franchisor provides a knowledge base developed from their experience, as well as that of all the Franchisees in the system, which would otherwise be impossible for a non-franchised business to access.
- Defined territories of operation within the Franchise can help protect the Franchisee from competition and ensure multiple franchisees are working together to dominate a market.
- A Franchisee can always speak to their Franchisor or a fellow Franchisee to discuss their business challenges or problems – something a non-franchised business can almost never do.
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