Franchising is a continuing relationship in which a franchisor / established company licenses another party /franchisor to sell its products, goods or services under its brand name and offers assistance in organizing, training, merchandising, marketing and managing in return for a monetary consideration. The best part of franchising is that you get a readymade business with tried and tested system of operations and trainings. It is the fact that franchising is growing faster than most other sectors in the Indian economy. Consequently, the franchise business is becoming increasingly popular among domestic and international players across many sectors. Here are some advantages to franchising your business:
- Franchising provides Expansion Capital:
It is known that the major hurdle to expansion faced by today’s small businesses is lack of access to capital. However, franchising offers some relief in terms of capital. The primary reason behind franchising the business is that it permits business entrepreneurs to expand without the debt or the cost of equity. Capital generated through the sale of franchises can be used by franchisors to continue to develop and expand the franchise system.
- Motivated Management:
Finding and retaining good managers is an onerous task indeed. Many a times, a business owner spends months looking for and training a new manager, only to see him leaving the job or, even worse, getting hired by the competing company. However, franchising allows the business owner to overcome these problems by substituting an owner for the manager. Franchisee would be way more motivated for he is materially invested in the success of the operation. Since the franchisee is invested, he would try his best to not walk away from the business. Also, the level of innovation and operational quality of a franchisee would be far more than the manager. All in all, franchisees would outmanage and outperform managers.
- Fewer Employees:
Running a network of company owned units demands higher number of employees than operating a franchise network. Also, in a company owned units, the employees and manager are on the company payroll whereas in a franchised unit, they are employed by franchisee. This provides relief to the franchisor about the extra responsibilities related to employees.
- Reduced Risk.
In the franchising model, franchisee is the one who executes leases for equipment, autos, and the physical location, and has the liability for what happens within the unit itself. Franchisor would not have to risk its capital or sign lease agreements and employment agreements. Hence, franchising has substantially reduced risk.
- Penetration of Other Markets:
A franchisee would generate higher revenues than a manager, would a keep a close eye on expenses, and operate a unit more profitably. So as a franchisor, you get the flexibility to consider markets wherein corporate returns might be marginal and you can consider expanding to secondary and tertiary markets. This would in return accelerate the success of the franchise.
- Rapid Growth and Increased Profitability leading to Increased Business value.
Opening a single unit takes time. Franchising allows companies to compete with the competitors so they can saturate the markets before others. Also, the staffing leverage and ease of supervision in the franchising model lets franchise run in a highly profitable manner. Thus, franchisors are often valued at a higher multiple than other businesses owing to the combination of rapid growth and increased profitability.
The aforementioned list of advantages may lure you to franchise your business. However, no business is a child’s play. Every business model has its own challenges and pit holes. However, with its decades of experience and well-equipped team, Franchise Insider is all set to help you make your journey to successful business smoother and easy. If you too are considering franchising your business, then do contact us:
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