Advantages of Franchising

Advantages of Franchising a Business Includes Many Significant Benefits for the Franchisor.

While franchising provides franchisees with a proven system and the support of a much larger organization, the advantages to the franchisor are even more significant.

Capital

Since franchisees use their own capital, the franchisor has virtually no investment at the unit level. Franchising allows companies to leverage off the assets of franchisees.

Return on Investment

Because of this lower investment, ROI will be significantly higher.

Risk Reduction

With no capital invested in units, risk is reduced substantially.

Limited Contingent Liability

The franchisor will not be signing leases, taking on financing, etc., and will thus expand with limited contingent liability.

Speed of Growth

By leveraging off of the time and efforts of its franchisees, a franchisor can grow much faster without adding staff.

Reduced Role in Day-to-Day Operations

As a franchisor, your primary concern involves the franchisee’s top line performance, reducing the scope of your involvement in day-to-day management.

Reduced Vicarious Liability

The liability for acts of employees (e.g., sexual harassment, EEOC violations, etc.) and for occurrences in the unit (e.g., slip-and-fall) accrues to the franchisee, not the franchisor, for the most part.

Highly Motivated Management

Franchising can provide a company with highly motivated management who will treat individual units as its own.

Quality Control

Franchisees generally keep their units in better operational shape than unit managers and, as a part of the community, are better able to promote these units locally.

Long-Term Management

The franchisor can invest in the long-term training of its franchisees, as they are unlikely to leave short-term.

Unit Performance

Units are generally better run, as is reflected in the fact that franchised stores generally outperform company-owned stores in terms of sales volume.

Lean Structure

Franchisors can grow the organization without adding significantly to overhead.

Brand Building

This ability to grow the organization without substantial additions to overhead will allow franchisors to grow their retail presence and their brand more quickly and effectively.

Advertising

Franchisees will often contribute to a common advertising and promotional fund. This fund will be used to promote the brand under the direction of the franchisor.

International

International expansion becomes easier, faster, and carries far less risk since a local partner becomes involved.

Moreover, it is important to note that franchising is not an exclusive strategy. Most franchisors use it in conjunction with company-owned growth to compound growth.