One of the biggest barriers to small business expansion is the money it costs to grow. And while there are several commercial lending options, they don`t always work. Crossing your business will take time and money on your end, but it also has the potential to bring you a lot of money in the form of franchise fees. Of course, the pros and cons of franchising don`t just apply to the franchisee. The franchisor should also weigh the pros and cons before deciding to embark on this business model. First, let`s explore the benefits of franchising that the franchisor can enjoy. In a franchise business, the franchisor provides a developed way of doing business, ongoing advice, systems and support in exchange for regular payment of fees and/or purchases. In addition, the franchisor is often even more isolated because the franchise is registered as a new business unit, so the original business remains the property of the franchisor as a separate entity from the franchise. A franchise lawyer can help you define the terms of this type of protection in the franchise agreement.
One of the biggest challenges of any new business is finding customers. Franchises, on the other hand, have instant brand awareness and a loyal customer base. Even if you`re opening the first branch of a franchise in a small town, it`s likely that potential customers are already familiar with the brand through exposure to TV commercials or trips to other cities. One of the biggest advantages for the franchisor in a franchise agreement is the ability to grow without increasing the risk. Since the franchisee assumes the debt and responsibility for opening a unit under the franchise name, the franchisor receives all the benefits of an additional location without assuming the risk itself. However, a franchise network has the opportunity to buy products at a significant discount by buying in bulk. The parent company can use the size of the network to negotiate agreements that benefit each franchisee. Reducing the cost of goods reduces the total cost of ownership of the franchise.
With this in mind, many see franchising as a commitment, a bit like a marriage. A good agreement between franchisor and franchisee, pursuing common long-term goals, is essential to the success of each franchised entity and therefore of the brand as a whole – an essential factor that must be seriously considered by both parties before signing a contract. Other franchises may not offer everything, but all franchises offer the knowledge and wisdom of the franchisor. Whether this knowledge is stored in a searchable digital knowledge base or is a phone number to reach the franchisor directly, the franchisee has access to a vast pool of business support to guide them through the process of owning and operating a business. This knowledge can be essential to running a successful business and make it much easier than starting a business from scratch. Depending on the terms of the franchise agreement and the structure of the business, the franchisee can essentially receive a turnkey business transaction. They can be bundled with the brand, equipment, accessories, and advertising plan – basically everything they need to run the business. For franchisees, the benefits include: a greater chance of success than in a sole proprietorship; shorter opening time; initial training and ongoing support; Assistance in finding an optimal location; the selling power of a well-known brand; reduce costs through group purchasing; Use of an established business model; national and regional advertising campaigns; Generate customer leads through centralized websites and call centers; and a network of peers (other franchisees) to provide advice and moral support through a corporate intranet, annual conferences and franchisee associations; and increasingly support for obtaining funding. McDonald`s founder Ray Kroc said: “If we want to go anywhere, we have to have talent.
And I`m going to put my money into talent. You need well-trained, motivated and well-cared for franchisees. Once your franchise chain is established, a good model you can emulate is the McDonald`s Center of Training Excellence, the University of Hamburg. Your mission (as it should be yours) is to focus on consistency of operations, service, quality and cleanliness. When a business owner opens an independent business, they retain full control over their brand and all decisions that take place within the business. Buying a franchise can be a viable alternative to starting your own business. Here are some of the pros and cons of buying a franchise. In this process, the franchisor locates, negotiates and signs the leases of the stores and rents the premises to the franchisees. This gives the franchisor the power to distribute franchises that do not comply with franchise agreements, or for other reasons, and distribute them to new franchisees. Exposure to huge rental obligations is mitigated by the use of a sublease clause that allows franchisors to sublet space to other franchisees or non-franchised tenants. As with any business opportunity, there is no guarantee of success and compromises must be made.
In a way, franchising is like paying condominium fees instead of owning a home. A condominium corporation bundles a monthly fee for joint external maintenance (mowing, snow removal, roof repairs, etc.) – a trade-off that many want to make to focus on their “core business,” living their life (or business) within the walls of their condominium (or franchise) unit. And unlike tenants who can be evicted (or company employees who can be laid off or “reduced”), franchisees have a power of their own: a franchisor cannot “fire” a franchisee who works in accordance with the franchise agreement. Although a franchise agreement sets out the expectations of the franchisee and franchisor, the franchisee has minimal authority to enforce the franchise agreement without costly litigation. Whether it`s a lack of support or simply a clash of personalities, the close business relationship between franchisor and franchisee is full of conflict. A franchisor should examine all potential franchisees before doing business with them, and as a franchisor, you should also take this opportunity to get a sense of the franchisor`s personality and leadership style. An unsuccessful franchising concept usually triggers the insolvency of the franchisor as well as the franchisees. If this happens and the franchisor has mixed franchise deposits, franchisees who have not yet opened stores will lose the fees they paid. Franchisors who follow an escrow franchise fee policy will enjoy the following benefits: One of the many benefits of franchising is increased brand awareness. .