There is an obvious appeal to building your own brand from the ground up, but this is often counteracted by many challenges. New businesses come with many unknowns, which eventually cause them to fail within the first few years of operation. Therefore, many entrepreneurs are choosing to invest in franchise companies rather than starting a new business.
Although buying a franchise doesn’t guarantee instant and sustained success, it leverages your business for success. If you’re exploring the idea of buying a franchise, here are a few reasons why you should consider the investment:
You’ll be buying into a proven system
One of the hardest parts of setting up a business is the start-up stage. It requires you to write down a business plan, conduct market research, create a viable product, test it, and scale it. Investing in a franchise allows you to skip this step because the franchisor has tried and tested systems proven to work. All you have to do is apply their system to your market.
The franchisor has brand recognition
Franchise companies devote a huge chunk of their profits to marketing and advertising, which helps them gain significant brand recognition. It also helps them build trust with customers, which is critical to the success of a business, especially in care franchises, education franchises and beauty franchises. Therefore, new franchisees benefit from immediate foot traffic to their businesses.
Initial and ongoing support
One of the reasons why franchises are so successful is because of their easily replicable system. Franchisors routinely provide initial and ongoing training to employees at every location to help get them up to speed on how things operate. This often includes on-site training on opening procedures, daily operations, marketing and advertising, etc. They also give you access to their operations manuals, giving detailed instructions on the management and organization of business processes.
A franchise is easier to finance
The difficulty in attracting initial capital to start a business is a challenge that many entrepreneurs will be familiar with. The stringent eligibility requirements applied by banks and other lending sources make it extremely hard for prospective business owners to get business loans. Lenders will want to see your business plan to prove that you can service your loan, and this is where investing in a franchise comes in handy. The franchisor’s reputation and the financial indicators of other operating franchisees help convince banks and lenders to give you the loan capital you need.
Help with marketing and advertising
Marketing and advertising are crucial to the success of both online and offline businesses. As a new franchisee, you will get help with marketing and advertising from your franchisor. As they run nationwide campaigns on TV, billboards, and social media, your business will gain visibility and attract new customers. You will also receive assistance on how to create effective marketing campaigns for your specific demographic. They will provide you with a customized marketing plan consisting of a budget, market analysis, strategy and a sales forecast.
Access to increased purchasing power
One advantage that large businesses have over small businesses is their access to increased purchasing power. Therefore, by investing in a franchise, your business will benefit from the collective buying power of the parent company. Your equipment and inventory will cost significantly less than that of an independent company, saving you more money.
Higher rate of success
Research shows that franchises have a much better chance of success compared to independent start-up companies. As a matter of fact, the one-year survival rate for franchises is 6% higher than that of independent businesses. This success is mainly attributed to the fact that franchisees buy into a well-established business model that has been successful for many years. Having access to the expertise and experience of franchise executives can be of immense value to a new business. These franchise companies have been in business long enough to have made mistakes, learned and survived them, and now they offer a formula that ensures that you don’t make the same mistakes.
The exit value of your business may be higher
If you decide to exit your franchised business, you must remember that you do not have any claim on your franchisor’s equity other than the value it brings to your business. That said, much of your business’s goodwill value is going to be left behind. If you can transfer your business to a new buyer for a completely new term or a reasonable portion of your term, then your resale value should be significantly higher than that of an identical independent business.
To make your franchise resale process more effortless, ensure that you understand your transfer rights and ask if the franchisor will be retaining any rights of first refusal. Most franchise companies retain the right to evaluate who the business is transferred to after your exit. There are many types of franchises, to suit anyone’s interests. From home based, low cost franchises to automotive, there’s something for everyone.
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