Reasons to Franchise Your Business
- Your business can be significantly and rapidly expanded without a large capital investment. When you franchise a business, the expansion is financed with capital contributions made by the franchisees. As each franchise commences operations, the franchisor's income increases. The franchisor's contribution includes creating a successful business model and marketing plan, granting the franchisees the right to use the business name and goodwill developed by the franchisor, training and advice, and the exclusive right to a defined territory.
- The franchisor earns a franchise fee and continuing royalties. The franchise fee is the initial fee paid for the franchise and will vary depending on many factors. For new franchises, the fees tend to range between $5,000 and $25,000. As franchises become more successful, the fees are increased. Royalties are generally paid monthly and are usually five to six percent of the franchisee's annual gross income. Royalties pay for the franchisor's continuing support of the franchisees and to pay advertising and marketing costs to directly benefit the franchisees and indirectly the franchisor.
- Franchising allows the franchisor to effectively penetrate markets that would otherwise be impractical or cost prohibitive to enter primarily because of distance. Franchising can result in a well run, successful local business expanding throughout a region, across the United States, and in some cases, internationally.
- When a franchise operation opens for business, all capital requirements are paid by the franchisee. Each franchisee must pay for their own equipment, supplies, inventory, working capital, furnishings, lease deposits, and other expenses. In addition, the franchisee uses his or her credit to obtain necessary financing, leases and credit. This is why the ability of a franchisor to expand is limited only by the value of the franchise as determined by the market.
- The franchisor can establish controls on the operations of the franchisees to assure that the franchisees are using the methods and procedures established by the franchisor in its successful business. The controls are set forth in the franchise agreement and are intended to help the franchisees succeed.
- Generally, franchisees work more diligently and invest more of their time into the business than employees. When a person owns their own franchise business and has money invested, they are almost always more motivated to achieve success than employees of a business.
- Franchisors generally have no liability for the actions (or inactions) of franchisees and their employees. By franchising your business instead of expanding it yourself, you are shifting potential liability to the franchisees which should all be separate corporations.
- Franchisees have a lower rate of failure than non-franchised businesses because the franchisees have the benefit of a well thought out, proven business plan and operation. In addition, they receive training, on-going advice, and continuing support from the franchisor which results in far lower mistakes and wasted money. If a franchisee should fail, the franchisor's loss is limited to the loss of royalty fees and reputation only. Often it is possible to find a replacement for a failed franchisee.
In the United States:
- An average of 300 franchises are acquired every week.
- One out of every 12 businesses is a franchised business.
- Franchised businesses generate nearly 50% of all retail sales.
- Franchised businesses employ over 14% of the private sector work force.
- There are more than 1,500 different franchises available.