People are attracted to franchises because the best ones have proven to be extremely successful over the years, and they combine many of the benefits of business ownership with the brand name, experience, and economies of scale provided by the established corporate franchisor. In fact, good franchises generally have a higher success rate than other types of businesses. Let's take a look at the advantages of franchising:
Name recognition: A well-known name can bring customers into the business and provide a competitive advantage for the franchisee.
Proven business: Opening a franchise comes with the advantage of knowing that this business has been successful in other locations. The idea and process of running this business have already been proven. Therefore the learning curve in operating the business can be virtually eliminated.
Lower risk: Risk of failure is much lower with a franchise than starting a brand new business. There is a much higher likelihood of success if the same business has done well in other areas.
Established customer base: The brand name that comes with the franchise is already recognizable to consumers, without the franchisee having to spend a lot of money and time in establishing a new brand. The brand awareness provides security and trust to the customer who expects uniform quality to be provided. Therefore a potential customer base is already established.
Marketing: The franchisee can benefit from any advertising or promotion that the franchisor does at the national or local level, without absorbing the cost. The franchisor can also provide input to the franchisee on a local marketing plan.
Initial and ongoing support: Training and support is usually part of the deal. Since the franchisor has a vested interest in how well you do, ongoing training, system upgrades, product enhancements, and question and answer resources are provided. The franchisor offers experience to franchisee in such areas as accounting procedures, personnel and facility management, and business planning.
Exclusive territory & Site selection: Rights are exclusive for the territory, with no other franchises sold in the same area as competition. Most franchises will even assist the franchisee in selecting a site for the new franchise location.
Ease of funding: A franchisor will generally assist the franchisee in obtaining financing for the franchise. In many instances, the franchisor will be the source of financing. Many times obtaining financing for a franchise is easier since the franchise name and reputation are usually recognized by the lenders and are considered less risky than businesses started from scratch. Therefore, banks are more likely to fund the franchisee.
Purchasing power: Relationships with suppliers are already established; affording the opportunity to buy in bulk, enabling a great deal of savings for the business.
Pre-purchase information and research: The potential franchisee can make an informed decision because of information that can be obtained prior to purchase. The Federal Trade Commission requires franchisors to provide the franchisee with certain information including the company’s history, information about the officers, litigation history, audited financial statements, the franchise agreement, and a current list of franchises with owners’ names and contact information.
Solid economic niche: Franchises cater to consumers’ specialized needs. Consumers tend to prefer doing business with companies that meet their specific needs and the franchise industry has been fitting the bill.