Franchising has become an increasingly popular way to start a business in recent years, with many entrepreneurs opting to join a franchise network rather than starting from scratch. But why is franchising so successful? In this article, we’ll look at why franchises have such high success rates and the advantages of joining a franchise network. We’ll also discuss the critical considerations before going down the franchising route.
How successful are franchises in South Africa?
Franchises are known to have much higher success rates than independent businesses. In fact, according to FASA ( Franchise Association Of South Africa), franchisees have a failure rate of less than 10% compared to independent startups, which have a whopping failure rate of 90%.
Now below, we will list some of the reasons why franchises have such high success rates:
The franchisor provides support
Franchising is a form of business in which a parent company (franchisor) licenses its brand, trademarks, and operating methods to another entity (franchisee). The franchisor also offers ongoing support to the franchisee. This support typically includes training, marketing and advertising assistance, legal advice, and access to proven business systems. This support helps the franchisee maximize their business’s potential. Franchisors are often experienced and knowledgeable businesspeople who have already established a successful model. They provide an invaluable service to their franchisees by teaching them the ins and outs of running a successful business. In addition, the franchisor can provide valuable feedback on improving operations and advice on local regulations and licensing requirements. By providing this support, the franchisor helps ensure the success of its franchisees.
The brand is already established
One of the main reasons why franchises have such a high success rate is that the brand is already established. The franchisor has done all the hard work to build the brand, so franchisees don’t have to spend time and money making a name for their business. In addition, customers are familiar with the brand and have a certain level of trust with it, which gives franchisees an advantage over independent businesses.
Also, because the brand is already established, franchisees don’t have to worry about marketing or advertising costs. The franchisor has already implemented marketing campaigns and strategies to promote their brand and attract customers. This means franchisees can focus on providing excellent customer service and running their business instead of spending time and money on building a brand from scratch.
There is a proven business model
Franchises also have high success rates because they utilize a proven business model. The franchisor has tested and perfected this model, and new franchisees can benefit from this system without having to reinvent the wheel. The franchisor will provide franchisees with detailed instructions on how to set up their business, including the steps needed to launch the business and how to maintain it. This provides franchisees with the necessary knowledge and experience to get off to a good start. Additionally, the franchisor’s experience in running multiple businesses allows them to advise on optimizing operations, such as selecting the right employees, marketing strategies, and financial systems. In short, by utilizing a proven business model, franchisees can focus on growing their business without worrying about making costly mistakes.
Franchises have access to better financing options
Most franchises have a well-established relationship with banks and other lenders, which can provide more favourable terms than an independent business owner may be able to obtain. This can make obtaining a loan easier or get lower interest rates and extended repayment periods. Additionally, franchisors often provide their own financing programs, which can reduce the financial burden of starting a business. With these programs, franchise owners can benefit from lower start-up costs, access to capital for expansion, and cash flow management options tailored to their needs.
If you would like to learn more about the various financing options when buying a franchise, you should check out our previous article explaining the many different methods to get funding for a franchise.