People thinking of starting a new business have the option of buying into a franchise or creating an independent company. Although there are fees involved with franchising, you also gain several advantages.
Weighing the benefits helps entrepreneurs see whether the investment is worth the cost. Success is never guaranteed, but a franchise does offer some advantages with slick marketing, territories and proven products.
What Is Franchising and Its Advantages?
According to the 2022 Franchising Economic Outlook report, the number of franchises hit 774,965 in the United States in 2021. The industry growth rate was around 2.8%, and recovery from the pandemic into 2022 was swift.
Franchising lets people buy into an already established business model. For a fee and typically a percentage of sales, franchisees gain access to a bigger corporation’s marketing department, logo, techniques and brand recognition.
Some examples of popular franchises include restaurants such as Subway and McDonald’s. However, there are franchises for any type of business one might imagine, such as pet supplies, cleaning, in-home elder care and other types of retail establishments.
Here are some of the biggest advantages of choosing a franchise over an independent business.
1. Gain a Mentor
Tapping into a franchise is like having a built-in mentor to help new business owners over the hurdles of starting a new company. Researchers recently updated statistics on mentoring and found about 84% of U.S. Fortune 500 companies have mentoring programs. Large corporations use mentoring to drive employee growth because it works.
Most franchise programs have a point of contact to help new stores get up and running. They may even come to the location and show management how to set things up and do a trial run to ensure everyone understands their methods.
2. Get Financing Easier
Finding financing to start a new business is challenging for most people — even those with excellent credit. Banks aren’t always willing to take a chance on a new brand. However, lenders are more likely to approve a loan to start a franchise than put their money behind an unproven business.
Over a 10-year period, many small businesses fail, and only a handful thrive. However, franchises already have a proven track record. Banks and investors are much more likely to see the potential in a company that makes money in other markets similar to where the new franchise store will be.
3. Have Instant Brand Recognition
Someone buying into a franchise is paying for the name as much as anything else. People recognize bigger brands or ones in nearby towns. When one thinks of bath bombs, they likely think of Lush.
There are tons of bath bomb stores and individuals selling them, but a Lush store stands out because it has an edge in the marketplace. People know the name and quality. They love the causes Lush embraces.
Think about how well-known the franchise is in the area of the country. Will people instantly recognize the brand? Will the name alone drive traffic to the new store?
4. Learn Better Processes
Smart franchises have perfected their processes, right down to the type of everyday carry (EDC). This is a list of items someone needs to do business or life effectively. In the 2020s, one might carry a smartphone, paper, pen and business cards.
Most franchises even hand out some of the tools owners need day-to-day. Some items will be kept in the store while others are carried on a person as EDCs.
Think about the way a Subway store functions. No matter which location one visits, the setup is very similar. The bread is behind the sandwich artists and the meat is in the case first, followed by cheese, veggies and toppings. The format is perfected for maximum efficiency.
5. Receive More Buying Power
Stores with a large network benefit by gaining bulk buying power. What owners can purchase on their own will almost always cost more than via a network.
For example, Walmart cuts the price of personal beauty items far below what people can buy them for elsewhere. Its ability to buy massive quantities helps it negotiate discounts a small mom-and-pop store can’t achieve.
6. Improve Supply Chain
Supply shortages have dealt companies a blow over the past couple of years. A franchise might come in handy to ensure businesses keep their store shelves fully stocked. Experts say the supply chain shortages are worse than they’ve been in 50 years, thanks to the pandemic and other economic factors.
The U.S. now gets many of its goods from Asia. Due to COVID-19 outbreaks in Shanghai and Beijing, massive shutdowns will ripple through the economy again. Store shelves will remain bare for some products.
However, a franchise will look for other options. It will also ensure products get distributed where they are most needed to their franchisees. The store might not always have everything in stock, but there will be enough to offer customers a substitute.
7. Be a Manager
The pandemic brought on the Great Resignation. People simply aren’t willing to risk their lives or take home a deadly virus when they aren’t paid a living wage. Many stayed unemployed, while others took advantage of the downtime to start their own businesses.
According to the U.S. Chamber of Commerce, around 3.4 million people left the workforce since the pandemic started. The labor force participation rate is a mere 62.1% and doesn’t seem to improve month over month.
Finding, hiring and training a manager costs time and money. Because of the massive shortages, especially in some industries such as food, it’s likely all effort will be for nothing when another brand steals the new employee away for more money or better benefits.
Franchise owners can be their own managers. They’ll have the grunt work done for them, so they can serve the role of unit manager and hire shift managers to fill the gap. Training and hiring for these roles may be much easier than for a store or regional manager.
8. See Limited Competition
Most franchises limit how many stores of a certain type can be in a geographic area. A franchise program is the right choice if an entrepreneur wants to open a business without worrying about the same one moving in next door.
Of course, no one can control what independent store owners might do. However, they won’t have the name recognition or branding advantages that a franchise has with a corporate structure already in place.
Is a Franchise the Right Choice?
Small-business owners that buy into a franchise will discover many advantages to hitting the ground with an already established brand. The support and built-in customer base help the operation grow quickly. However, as with anything, there are disadvantages to being tied into another company and having someone else make decisions on marketing and what products a store can and can’t carry.
Take the time to think through whether the benefits outweigh the risks. Franchising can get someone to market fast and ensure they open their store before some competitor beats them to it. The many advantages of franchising overcome the few drawbacks.