Franchise businesses are based on systems, which have been tested, enhanced, and tested again by the franchisor. And having access to that system allows you (as a prospective franchisee) to get into business quickly, lower your initial investment, and steer clear of common mistakes that most new business owners make.
Almost all franchisors provide initial training to franchisees on each aspect of the business before they start operation, including how to find a suitable site, recruit and train your team members, attend to your customers, and manage your establishment. And that training is only a starting point for many franchisors. Besides, franchisors give their franchisees a comprehensive operations manual to let them know how to handle most situations that may occur during their daily operations. A lot of franchise companies also offer continuous training and support– both in the form of telephone support and by assigning a field representative who will pay you a visit from time to time. The job of this field representative is to act as a business coach and to ensure that you and other franchise owners in the system are adhering to the brand standards that made the business concept a success at the beginning.
Here are three other important benefits of buying a franchise:
1. Established Reputation
No matter the number of units the franchisor has, it is sure to have more brand recognition than you could have as a stand-alone personal business. If the franchisor’s name recognition comes with a good reputation at the consumer level, it will benefit you as a franchise owner.
This is particularly true for service-based franchises. As an independent startup business, your marketing message to potential customers might be, “I start this business not long ago and might not have any experience, but I will strive hard to deliver what you want.” But as a franchise owner, the message goes thus, “We have been operating for XY years and have worked with A, B, and C, who will be glad to provide great references. Now, we are extending our services to your city, and I was wondering if you would like us to help you….”
2. Cost Advantages
The second advantage of purchasing a franchise may be contrary to what you believe: Franchise businesses can be less costly to start than stand-alone businesses. As a potential franchisee, you may find this difficult to believe since you need to pay an initial franchise fee of around $25,000 to $50,000 or more to join a franchise system. But that’s true. Want to know why?
As a franchise owner, you are going to know what inventory to purchase and what equipment you need to lease. And you are likely to get products at a reduced price because of the franchisor’s high buying power and pricing arrangements with vendors. You will also be taught how to market your business without wasting your money and time on advertising strategies that do not work. Plus, you will be able to control your initial startup costs and stay away from mistakes that might make you lose a lot of money. You will also gain from the franchisor’s experience in many ways that will help you cut costs and increase your bottom line.
Moreover, the franchisor has already take care of some expenses. So, you will not have to pay for these costs again as a franchisee, such as designing a logo, registering a trademark, creating a brand website and marketing materials, creating basic merchandising schemes, coming up with proprietary recipes (for restaurant franchises), developing relationships with supplies and negotiating discounts.
The point is, even though you may need to pay a costly franchise fee, you are more likely to be cash positive sooner in a franchise business than in a non-franchise business. This is extremely likely if you have never owned a business before. So, although the franchise fee may raise your startup expenses, the overall costs tend to be lower.
Likewise, while you will have to pay the franchisor a recurring royalty fee, the franchisor will give you continuous support, proven systems, and name recognition in return. Many franchisors will also have developed effective marketing campaigns that can help you make the most out of their already established brand. They may also have a higher buying power, allowing you to save big on expenses. Some franchisors may get you national accounts, which can offer extra benefits.
3. Staying Power
You may also get a higher offer for your franchise when you want to sell your business. And it is easy to see why. If you were planning to buy a business and had two options: a McDonald’s franchise or a business owned by one Adam Clyde (if all other factors, such as profitability, were equal), which one would you choose?
Take a moment to think about this. Although none of the options is guaranteed to make you money, the handover of the McDonald’s franchise to a new owner will probably be easier. This is because the McDonald’s franchise comes with the operational manuals and expertise to make the transition goes smoothly. Besides, McDonald’s customers already know what they can expect from any outlet of the restaurant, as the parent company puts in a lot of effort and time to ensure brand consistency. As for the other option, the moment Adams leaves the company, about 50% of his customers may also leave with him. Besides, who will assist with the transition? Who is going to ensure quality control?
The majority of people would prefer to go for the McDonald’s franchise, and therefore its owner could sell it at a premium.
Although the brand is also one of the main perks of buying a franchise, your real value proposition is the quality of the franchise system and the level of support you will receive from the franchisor. In the end, the key to the success of most franchisors is they help their franchisees make a lot of money. Franchisors whose franchise operators got rich through franchising find it easier to convince new franchisees to join them.
