Last week I gave you a quick overview of the advantages and disadvantages of owning a franchise business. But to make a sound decision, it is necessary to dive deeper into the pros and cons of being a franchise owner. This week, I want to continue the franchise theme and do an in-depth analysis of why buying a franchise has many advantages.
So let’s jump right into it!
”As a franchise owner, you get ready access to resources like securing loans, training of staff, technology to use and more, thereby saving you lot of time and money...
WHY SHOULD YOU CONSIDER BUYING A FRANCHISE?
In short, buying a franchise could jump-start your new business. Read on to know how.
1. Instant Brand Recognition
Without a known brand, it takes a long time for people to know what products or services you provide. A known brand will give your buyer a perception of your offerings very quickly. McDonalds or 7-Eleven or The UPS Store are unique franchises. People know what they do and routinely visit them. They would go to a McDonalds if they want a burger instead of an unknown place. Without a known brand name, it may be months before people start coming to your business, even if your products and services are better than those of the franchise. This means you have to run the new business at a loss for a long time before you break-even or make a small profit. It can also mean closing your business if you cannot sustain the loss for some time. Basically, a franchise can jump-start your new business.
2. Dedicated Resources
A franchisor is in the business of making money through the operations of thousands of franchises. Hence they have dedicated staff for all aspects of operating a business as explained below:
- Location: Franchisors will do complete demographic studies before agreeing on a location. Their real-estate staff will negotiate the best deal for long-term leasing. Some landlords of shopping centers will prefer a franchise over an independent business.
- Design, Construction, and Loans: Franchisors can help the new franchisees in hiring an architect, getting approval from the city, securing construction loan and ultimately getting a new location ready for operation.
- Technology: A new business requires point-of-sales systems, and software to track sales reports, inventory purchases, and bill payments. Franchisors typically help a new franchisee with all these systems.
- Marketing: Franchisors typically do National and Regional marketing, but franchisee is responsible for local marketing. This can include mailing flyers through the post office, social media, local publications, community and local business bureaus etc.
- Training of Staff: Besides hiring, staff needs to be fully trained. Franchisors offer training to the new owner before even starting the business, followed by ongoing training to his/her staff.
- Strength of volume: Typically a franchisor has approved vendors who have pre-negotiated prices for various products and services that a new owner needs. In some cases, a lot of products and services are provided by the franchisor. It allows the new owner to concentrate on core business instead of every aspect of the business.
- Government Regulations and Safety: There are various federal, state and local regulations that a new business has to follow. They include federal and state income taxes, sales tax, liability insurance, state and federal ID, Workman’s and Errors and Omissions insurance etc. Franchisors help with these requirements as well.
- Net Profits: Some franchisors also help with the profitability of a business, while others are only interested in the revenue. Either way, they guide the new owner towards higher gross and net profit.
As a franchise owner, you get ready access to all these resources, saving you lot of time and money.
3. Possibly High Success Rate
Depending on the type of franchise you own, the success rate can be significantly higher than starting an independent business. Additionally, a franchisor guides the new owner towards higher gross and net profit.
4. Quick Expansion Prospects
Expanding a franchise is quicker than an independent business as franchises are easy to buy and sell. In fact, according to FRANdata, multi-unit franchise owners own 53% of 450,000 franchise units in the U.S and 76.5% of franchised restaurants.
Franchisors love this trend as these franchisees are financially strong, have business experience and can bear the ups and downs of the market. It is easier for franchisors to manage fewer points of contact as well. This results in:
- Opening multiple franchises: A franchise is inherently designed for multiple locations and very large geographic areas. On the other hand, an independently owned business is designed based on local needs. It is very hard to multiply an independently owned business.
- Buying and selling established locations: Franchise locations are generally easy to buy and sell. There is enough data available to support buying/selling price and the buyer knows that most of the information provided is accurate. Franchisors also offer loans to buyers which makes it easy to sell a franchise location. An individual business, on the other hand, is very hard to buy and sell. Sellers and buyers don’t trust each other and a lot of time deals fall through.
Thus buying a franchise gives you many advantages whether you are starting your first business or adding another one to your business. Next week, we will explore in depth the disadvantages of being a franchise owner.