There are currently close to 750,000 franchise establishments in the United States, and that number seems likely to increase in the future. Have you ever thought about franchising your business? Franchising can be a very strategic move for business owners who want to increase their income and grow their business. Read on to learn more about the benefits you’ll experience when you franchise your business.
What Does It Mean to Franchise?
A franchise is an arrangement in which one party (also known as a franchisor) grants another party (also known as a franchisee) the right to use its trademark and certain business systems and processes. This allows the franchisee to produce and market goods or services that align with a specific set of specifications.
In this arrangement, a franchisee will typically pay the franchisor a one-time fee. They’ll also pay a percentage of the sales revenue as royalty.
In exchange, the franchisee receives name recognition, access to tried and tested products, detailed techniques for running and promoting their business, and ongoing help upgrading and promoting their products or services.
Franchise Vs. Chain
As a business owner, you’ve probably heard of a franchise at one point or another. You may also have heard of a chain business. What’s the difference between these two options, though?
The main difference has to do with management. In the case of a chain business, there is one parent company that owns all the business locations. Independent owners then operate individual stores.
In the case of a franchise, whether that’s a store, restaurant, or even an elderly care franchise, there is no central ownership. Instead, investors typically purchase multiple franchises. But, many owners/operators are in charge of managing each location.
You can read more here about the differences between a franchise and chain to see which version works best for you.
Top 10 Reasons to Franchise Your Business
If you’re still on the fence about franchising your business, perhaps learning about these benefits will convince you that it’s a good idea.
1. Gain Access to Better Talent
When you franchise your business, you’re able to find new and talented people who can manage your locations and ensure they’re profitable.
Generally speaking, the people who are willing to invest in a business and become a franchisee are the most qualified and hardworking individuals.
By franchising, you’ll likely end up with more talented people working for you than you would if you were to just hire someone on the outside to manage your business.
2. Gain Easy Expansion Capital
Franchising also provides you with a great opportunity to obtain expansion capital. Since franchisees pay to have ownership in your business, you can increase the number of locations and grow your business without having to tap into your own capital.
You also will be less likely to have to deal with the frustration that comes with trying to get a business loan, especially if your credit is less than stellar.
3. Minimize Growth Risk
There’s also very little growth risk associated with franchising. It creates an opportunity for you to generate high returns without putting much of your own money into the new locations.
Assuming you have a good business model, you’re able to earn a lot of money in royalties from the sales at your various franchises. This, in turn, provides you with plenty of growth opportunity.
4. Gain Motivated Managers
If you’ve been a business owner for a long time, you may have experienced the frustration that comes with hiring a manager and training them, only to see them leave or go work for a competitor.
At the end of the day, a hired manager is an employee who may not be very committed or motivated. This isn’t the case when you franchise your business.
When you franchise your business, the franchisee will likely step in as a manager. Because they’ve invested their own money in the company, they’re more inclined to stay committed long-term. They’ll also likely provide higher quality management.
5. Grow Your Business Faster
Franchising also provides you with opportunities to grow your business faster.
When you franchise, the franchisee handles most of the day-to-day operations. This leaves you, as the franchisor, with more time to focus on making your business more competitive or moving on to your next big project.
6. Minimal Supervision Is Required
Franchising allows you to be more of a hands-off leader. The franchisor isn’t responsible for day-to-day management; that’s the franchisee’s job.
As a franchisor, you get to sit back and trust that the franchisee is handling the ins and outs of the business.
7. Increase Profitability
When done correctly, franchising can help you increase your business’s profitability significantly. If you’re considering franchising, you’ve likely got a system that works very well and earns you a decent income.
When you expand and open additional franchises, you don’t have to deal with the guesswork associated with starting a brand new business. Instead, the business can hit the ground running and start turning a profit right away.
8. Improve Business Valuation
Because franchises tend to experience faster growth and increased profitability, they tend to have a better valuation than an independent business. When it comes time to sell the business, you’ll likely be able to get more money for it since you’ve established yourself as a successful franchisor.
9. Break Into Secondary and Tertiary Markets
Because the franchisee is handling the day-to-day aspects of your business, you have more time and bandwidth to look into other markets in which you might want to invest. You’re able to expand your business in directions you never would have anticipated.
10. More Idea Creation Opportunities
Finally, franchising gives you opportunities to gain new ideas and perspectives. When you work with franchisees, you start working with a larger network of talented, qualified individuals. This allows you to learn new methods for running and growing your business.
Looking for More Business Advice?
As you can see, there are lots of benefits you’ll experience when you decide to franchise your business. Are you looking for more tips about running your business and maintaining its success long-term?
If so, be sure to check out the business archives of our site today. It’s filled with tips and tricks that will help your company continue to grow.
