benefits provide a good rationale for starting a business by purchasing a franchise. These must be balanced by the
costs or disadvantages.
It is important to
remember that not all franchises are created equal. Not all franchises have the benefits below. If they do have them they may not be sufficiently developed.
Your Axxiom Advisor will be able to help you
understand each benefit and how they differ in each franchise company.
experts agree that a franchise operation has a lower risk of failure than an independent business. The statistics
on this vary depending on the definition of failure. Whatever statistics are used, they consistently suggest that a
franchise is more likely to succeed than are independent businesses. The Franchisor can provide you with a proven
business model - one that has worked for others.
product or service
offers a product or service that has sold successfully. An independent business is based on both an untried idea
and operation. Three factors will help you predict the potential success of a franchise. The first is the number of
franchises that are in operation. The second predictor is how long the franchisor and its franchisees have been in
operation. A third factor is the number of franchises that have failed, including those bought back by the
The experience of
the franchisor's management team increases the potential for success. This experience is often conveyed through
formal instruction and on-the-job training.
Proven system of
feature of most franchises is that they have a proven system of operation. This system has been developed and
refined by the franchisor. A franchisor with many franchisees will typically have a highly refined system based on
the entire experience of all these operations.
already have in place operating and management efficiencies that benefit new franchisees. Operational standards
already in place also control quality and uniformity among franchisees.
provides operating systems and procedures to a franchisee. These include the areas of sales & marketing,
advertising, accounting, personnel, customer service, facilities, etc. An individual not experience in these areas
will be able to operate the business utilizing the operating systems and procedures. An individual with experience
in these areas may not be familiar with how to apply them in a new business. The franchisor helps a franchisee
overcome this lack of experience.
A franchisor provides ongoing
support to franchisees. This may include phone, webinar, and field
service personnel. A franchisor may have regional and national
conferences to provide ongoing training and introduction of new products, services or systems and
The ability to communicate with
other franchisees is paramount to an individual’s success. You can
communicate with other franchisees that are at your same level and discuss your experience. You can communicate with franchisees with much more experience and learn directly
from their past experience.
It is often
possible to obtain lower-cost goods, supplies, advertising & marketing materials and other items through the
franchisor. Lower costs result from the group purchasing power of all franchises. To protect this benefit, most
franchise agreements restrict the franchisee from purchasing goods and supplies through other sources.
franchisors can offer national or regional name recognition. This may not be true with a new franchisor. However, a
benefit of starting with a new franchisor is the potential to grow as its business and name recognition grow.
help franchisees develop a business plan. Many elements of the plan are standard operating procedures established
by the franchisor. Other parts of the plan are customized to the needs of the franchisee. A sound business plan
will help the franchisee obtain financing.
The most difficult
aspect of a new business is its start-up. Few experienced managers know about how to set up a new business because
they only do it a few times. However, a franchisor has a great deal of experience accumulated from helping its
existing franchisees with start-up. This experience will help reduce mistakes that are costly in both money and
typically offers several marketing advantages. The franchisor can prepare and pay for the development of
professional advertising campaigns. Regional or national marketing done by the franchisor benefits all franchisees.
In addition, the franchisor can provide advice about how to develop effective marketing programs for a local area.
This benefit usually has a cost because many franchisors require franchisees to contribute a percentage of their
gross income to a co-operative marketing fund.
It is possible in
some cases, to receive assistance in financing a new franchise through the franchisor. A franchisor can often make
arrangements with a lending institution to lend money to a franchisee. Lending institutions find that such
arrangements can be quite profitable and relatively safe because of the high success rate of franchise operations.
The franchisee must still accept personal responsibility for the loan, but the franchisor's involvement usually
increases the likelihood that a loan will be approved.
Franchising provides individuals
with strategies to grow their business. This ranges from optimizing
the potential of a single franchise to the ability to own multiple franchise units. An area development franchise is another strategy for growth; the franchisee buys
a protected geographic area which allows for expansion of units over a predetermined growth plan. Finally, there is the ability to become a master franchise where the franchisee
would own a large geographic area and would develop the area by offering franchises to other
individuals. The master franchisee would receive a portion of the
franchise fee and the ongoing royalty of each developed franchisee.
Due to the above benefits, the
sale of a franchise is likely to be much more attractive to a potential buyer than a typical existing
business. This will most likely bring higher sales prices for the
franchisee than a like business that is independently owned.