Opening a franchise is simpler than starting an independent start-up business. There are many reasons why opening a franchise improves the would-be entrepreneur’s potential to succeed. Firstly, the franchisor has done market research on whether the business model can work. The franchisor should test and prove the concept for at least six months to a year before starting to franchise. Secondly, the confidence in the ability of franchisees to outperform start-ups has led the major commercial banks to run franchise divisions to support the financing of franchise deals. Therefore, an entrepreneur is more likely to get funding from a bank than a start-up.
In addition to a higher propensity to succeed, being part of a franchise network offers many benefits. The franchisor assists the new franchisee with the project management of opening the new outlet. Once the outlet is ready to trade, the franchisor usually helps the franchisee with opening specials and an official launch. Before launching the new outlet, the franchisor will train the franchisee and staff on the operational aspects of the business.
Initial and ongoing franchisor support could include:
- Introduction to financial institutions for finance applications
- Market research on the potential of an area or competitors in the site selected for the new franchise
- Collective purchasing benefits as the franchisor negotiates for the group
- Collective marketing as the franchisor sets national strategy, and all franchisees contribute to a central marketing fund if that is part of the fee structure
- Ongoing research and product development done by the franchisor to ensure that the franchise remains competitive
- Recruitment of like-minded franchisees that further expand the brand footprint and, therefore, brand recognition
- Consumer acceptance as the brand has had exposure to the market
- Access to marketing collateral (materials and designs) that a franchisee can use in local marketing efforts
- Access to an operations manual containing all the necessary aspects for running the business.
Franchising offers all these benefits to help an entrepreneur succeed. However, franchising implies compliance with the business format and standards. If a franchisee dislikes rule-following and working within set boundaries, franchising may not be the best option.
The other main benefit of opening a franchise is that it simplifies succession planning or exiting a business. A well-run franchise could be sold to a new franchisee at a premium since there could be an element of goodwill factored into the price. The business will already have all the licenses required to trade and an established clientele. Should the franchisee wish to retire, a family member could succeed them, provided the franchisor approves the new franchisee and provides the required training if they haven’t worked in the business before. Either way, if the franchise performs well and is managed to the standards set by the franchisor, it could create wealth for the franchisee and be a stepping stone to buying or starting a new business.