Franchising Provides Reduced Risk
While franchising does not guarantee success, a good franchise can help reduce the chances of failure. Franchising offers a proven system as franchising features a tested operating system, the franchisee avoids many obstacles and benefits from several opportunities. When purchasing a franchise, the franchisee receives access to a proven system that includes initial training, opening assistance, accounting systems, established suppliers, manuals and use of trademarks. This fact helps prevent the franchisee from repeating previous mistakes. It also provides the franchisee with statistics and information on inventory levels, competition, store design, pricing structure and operational data.
Easier Access to Financing and Reduced Cash Requirements
Since franchises frequently have a higher success rate, many financial institutions prefer to lend to franchised systems as oppose to brand new businesses. In addition, the consumer awareness and name recognition of a franchise often reduces the grand-opening promotional costs and advertising spending. Finally, the purchasing power of the franchisor reduces the franchisee’s initial equipment and supplies expenses.
Franchising Provides Purchasing Power
The franchises purchasing power on products, supplies, equipment, advertising, health care and insurance often easily offsets the cost of ongoing royalties paid by the franchisee.
Site Selection Assistance
Franchisors provide site selection assistance based on their experience and demographic knowledge. In addition, many landlords and developers prefer to deal a business that has an established track record. This allows franchisees to obtain locations in major shopping malls and other developments that would not otherwise be available to an independent operator.
Franchising Means Advertising Clout
Many independent businesses cannot afford advertising and promotional expertise which can sometimes result in advertising that is poorly conceived and/or inconsistent. Furthermore, most independent businesses cannot afford the level of advertising required to maintain a strong presence in the marketplace. In a franchise system, advertising costs are spread across many units. This allows the franchisor to reduce costs due to economies of scale. It also lets the franchisee create more extensive, well-conceived promotional campaigns and lets them place the advertising effectively.
Franchises come with territorial exclusivity and national or regional name recognition. This means that many franchised business often sell faster and for a higher amount than independent businesses. In many cases, the buyer wishes to buy the franchised business for the same reasons as the original franchisee. Buyers may also associate a higher value with the franchise’s recognized name and system.
Franchising Means Reduced Stress
Franchises reduce many of the pressures of owning a business. They often operate more effectively due to the established systems that control scheduling, cash flow and inventory levels. This lets the franchisee focus on running the business instead of the business running him or her.