Advantages of Franchising Your Business

While franchising provides franchisees with a proven system and the support of a much larger organization, the advantages to the franchisor are even more significant.

Capital: Since franchisees use their own capital, the franchisor has virtually no investment at the unit level.

Return on Investment: Because of this lower investment, ROI will be significantly higher.

Risk Reduction: With no capital invested in units, risk is reduced substantially.

Limited Contingent Liability: The franchisor will not be signing leases, taking on financing, etc, and will thus expand with limited contingent liability.

Speed of Growth: By leveraging off of the time and efforts of its franchisees, a franchisor can grow much faster without adding staff.

Reduced Role in Day-to-Day Operations: As a franchisor, your primary concern involves the franchisee’s top line performance, reducing the scope of your involvement in day-to day management.

Reduced Vicarious Liability: The liability for acts of employees (e.g. sexual harassment, EEOC violations, etc.) and for occurrences in the unit (e.g. slip-and-fall) accrues to the franchisee, not the franchisor, for the most part.

Highly Motivated Management: Franchising can provide a company with highly motivated management who will treat individual units as its own.

Quality Control: Franchisees generally keep their units in better operational shape than unit managers and, as a part of the community, are better able to promote these units locally.

Long-Term Management: The franchisor can invest in the long-term training of its franchisees, as they are unlikely to leave short-term.

Unit Performance: Units are generally better run, as is reflected in the fact that franchised stores generally outperform company-owned stores in terms of sales volume.

Lean Structure: Franchisors can grow the organization without adding significantly to overhead.

Brand Building: This ability to grow the organization without substantial additions to overhead will allow franchisors to grow their retail presence and their brand more quickly and effectively.

Advertising: Franchisees will often contribute to a common advertising and promotional fund. This fund will be used to promote the brand under the direction of the franchisor.

International: International expansion becomes easier, faster, and carries far less risk since a local partner becomes involved.

Moreover, it is important to note that franchising is not an exclusive strategy. Most franchisors use it in conjunction with company-owned growth to compound growth.