Advantages of the franchise

The main advantages for most companies that want to enter franchises are capital, speed of growth, motivated management and risk reduction, but there are also many others.

1.Capital
The most common barrier to expansion facing small businesses today is lack of access to capital. Even before the credit crunch caused by the last recession, entrepreneurs often found that their growth goals exceeded their ability to finance them.
Franchising, as an alternative form of capital acquisition, offers some advantages. The main reason most entrepreneurs turn to franchising is that it allows them to expand without the danger of debt or the cost of capital. The franchisee provides all the capital necessary to open and operate a unit that allows businesses to grow using the resources of others. By using other people’s money, the franchisor can grow largely debt-free.

A franchisee is the one who invests funds to run the franchise, not the franchisor. Therefore, there is much less investment for a franchisor in building the business other than the costs to start the franchise.

2. Motivated management
Many entrepreneurs looking to expand their business to another location require hiring and training managers who can properly run the business. Managers are rarely involved in the business and can be easily recruited by the competition. In franchises, an owner is entitled to the business due to the requirement to use capital to become a franchisee. These owners are more loyal to the business and therefore more likely to stay.

Long-term commitment. Franchisees find it more difficult to walk away from a business in which they have invested a great deal of money and time.
Better quality management. Unlike managers, franchisees are long term “managers” and continue to learn about the business and are more likely to gain institutional knowledge that will make that person a better operator for many years to come.
Improvement of operational quality. Franchisees generally take more pride in their property than managers. They will keep your locations cleaner and train your employees better. They also care more about the customers they serve, as they have an interest in customer satisfaction.
Innovation. Franchisees are more inclined to look for opportunities to improve their business than managers.
Franchisees are often more concerned with saving money by controlling expenses.

3. Speed ​​of growth
For some entrepreneurs, franchising may be the only way to ensure they capture a leadership position in the marketplace before competitors invade their space, because most of these tasks are performed by the franchisee. The franchise not only allows the financial leverage of the franchisor, but also allows you to take advantage of human resources. Franchising allows companies to compete with much larger companies so that they can saturate markets before these companies can respond.

4. Staff Leverage
Franchising allows franchisors to function efficiently with a much more agile organization. Since franchisees will be taking on many of the responsibilities that would otherwise be taken on by corporate headquarters, franchisors can take advantage of these efforts to reduce overall staffing.

5. Ease of monitoring
The franchisor is not responsible for the day-to-day management of the individual franchise units. On a micro level, this means that if a shift leader or team member calls in sick in the middle of the night, they are calling your franchisee, not you, to let you know. It is the franchisee’s responsibility to find a substitute or cover her shift. If the franchisee chooses to pay wages that are not in line with the market, employ their friends and family, or spend money on unnecessary or frivolous purchases, it will not affect you or your financial gains. By removing these responsibilities, franchising allows you to direct your efforts toward improving the big picture.

6. Higher profitability
The staff leverage and ease of supervision mentioned in this document allow franchise organizations to operate in a highly profitable manner. Since franchisors can rely on their franchisees to perform site selection, lease negotiation, local marketing, recruiting, training, accounting, payroll, and other human resource functions, the franchisor’s organization is often much more simpler. The net result is that a franchise organization can be more profitable.

7. Improved ratings
The combination of faster growth, higher profitability, and greater organizational control helps explain the fact that franchisors are often valued at a higher multiple than other businesses. If you decide to sell your business, the fact that you are a successful franchisor that has established a scalable growth model could certainly be an advantage.

8. Penetration of Secondary and Tertiary Markets
The ability of franchisees to improve financial performance at the unit level has some serious implications. A typical franchisee will not only be able to generate higher income than a manager in a similar location, but will also more closely control expenses. Generally, a franchisee will have a different cost structure than you do as a franchisor; The franchisee can often operate a unit more profitably even after accounting for royalties paid to you.