There are many benefits of establishing a franchise-based business as opposite to starting a business on your own. Some of them are:
- A proven business model. Often a franchisee acquires a franchise because he or she trusts an already proven business model, which significantly reduces the risk of business failure. The risk of failure is lesser simply because that business has operated already for many years: it has faced difficulties, adverse situations, made mistakes, corrected them and has gained experience. One might expect that by acquiring a franchise, a franchisee will avoid many mistakes, which have already been made by the franchisor and other franchisees. This gives additional trust in the franchise and business.
- A well-known trademark of the franchised business. From the start, a franchisee receives a well-known franchise trademark, which, if popular in the franchisee’s market, may attract consumers without any major additional efforts of the franchisee. If a person, instead of buying a franchise, would start a business on his/her own, then he or she will need to create and promote its new brand through marketing and advertising from zero, so the attraction of customers would take much more time and money.
- Developed technologies, advanced work methods and trustworthy suppliers. After joining the franchise network, the new franchisee very quickly adopts knowledge and technologies created and fine-tuned by franchisor and current franchisees from the very establishment of franchise. A new franchisee will be able to avoid mistakes common at the business start, receive access to already proven suppliers and developed work methods. This essentially reduces the probability of bankruptcy and potential damage, which could occur due to business inexperience. It also highly decrease the time needed for launching a business unit and achieving operational excellence.
- The benefit of economies of scale. By joining a franchise network, every franchisee usually gets an opportunity to use the advantages of economies of scale in the areas of goods and services’ supply, marketing, scientific research, technological development and other important business processes. By developing a non-franchised business, an entrepreneur would not have the opportunity to receive the same cost and benefit ratio as he or she will receive by joining a franchise network.
- Training organized and assistance provided by the franchisor. Often entrepreneurs, when starting their own business, face difficulties because they do not know how to act in different situations and they do not have the respective business and process management experience. If it were possible, a majority of them would be willing to adopt the required knowledge from experienced entrepreneurs and contact them for advice on everyday business issues. A franchisor is directly interested in the franchisee’s success. Therefore, franchisees are not only controlled, but also constantly supported by the franchisor. Franchisors use various measures to support its franchisees, including direct assistance during opening of a franchisee’s unit, giving advices on any business related issues, providing continuous training and granting access to comprehensive operations manuals, which give exhaustive instructions on organization and management of the business processes.
- An easier way to attract financing. Difficulties in attraction of initial investments to start a business are quite common to any entrepreneur. Although, an entrepreneur may attract funds to start a business from banks or investors, however, in real life it is not easy because of strict requirements and risk mitigations measures, applied by creditors, which might become insurmountable obstacle for prospective entrepreneur. In the case of franchise acquisition, these risks are lower. Actual financial indicators of other operating franchisees as well as the franchisor’s background and reputation (instead of an abstract and unproven business plan) might convince banks or investors to grant a financing on softer conditions.
Notably, not all of the abovementioned benefits of buying a franchise come automatically with acquiring any franchise. It is the primary responsibility of the franchisee to make sure that the specific franchise and the franchisor, operating it, will provide the sufficient value for money paid by franchisee. In addition, each prospective franchisee must pay attention not only to benefits, but also to potential pitfalls associated with acquiring a franchise.