10 Reasons why Businesses Franchise

1.  FRANCHISING: 

It is the most successful way to grow a business without huge capital investment or financial liability towards leases or personnel. When a company franchises their business, they create a business model for other entrepreneurs to utilise and grow their own operations without incurring any liability on themselves.

This method of growth allows the business model to expand with virtually unlimited amounts of capital, benefiting the franchisor with increased income as each new unit opens.

2. CONTROLS: 

The operations manual addresses operational issues leading to efficiency and customer satisfaction. The manual is the bible of the new unit. It details all of the operations procedures that the franchisor has developed that the business needs, and allows the new recruit to progress rapidly and understand business procedures that are proven with the operations.

3. FRANCHISE FEES AND ROYALTIES: 

The owner of the business is able to charge an initial fee usually between £10,000 to £25,000 when the agreement is signed and an ongoing royalty which normally is 5% to 15% of the franchisee's gross volume. The major income for the owner is the Royalty that each recruit pays to them on a weekly or monthly basis.

4. LOW CAPITAL OUTLAY: 

When a new unit is opened, the burden of capital is shifted to the new recruit. All costs of land, building, improvements, equipment, furniture, furnishings, inventory, supplies and working capital are the responsibility of the franchisee. This is why the amount of capital to expand a business by franchising is virtually unlimited. Each new unit owner brings their own assets and credit to the business to expand it so that they have no increased liability or borrowing necessary.

5. SELF-MOTIVATED OPERATORS ( FRANCHISEES ): 

As a general rule, an owner / operator is more dedicated than the average corporate employee. When a person operates their own business, with their capital invested and have a direct personal liability for the performance of the business, the potential for success is greatly multiplied.

6. FRANCHISES HAVE LOWER FAILURE RATE: 

Only 2% to 4% of franchisees of a proven franchise concept fail, whereas 65% of new businesses fail within the first three years of operation. The reason that they are usually more successful is that the franchisee has access to proven business procedures, developed by the owner, and thereby eliminates many costly errors that cause a non-franchised business to fail.

7. PAYROLL TAXES: 

Unit employee salary, tax and tax reporting burdens are shifted to the franchisee. The franchisee is an independent contractor and its employees aren't the employees of the franchisor. The franchisor is not liable for the units labour costs and receives the Royalty from the gross volume of the operation, no matter what the costs to the Franchisee are.

8. NO DIRECT LIABILITY FOR FRANCHISEE'S ACTIONS: 

Generally the business owner is not responsible for the franchisee's actions or those of the employees of the recruit. By franchising their business, instead of expanding it themselves, they have transferred the liability to the new unit in all aspects of the operations. The franchisee is solely responsible for their own actions and cannot implicate them as a responsible party since the unit owner operates under a completely separate corporate structure then the franchisor.

9. QUICK MARKET PENETRATION: 

The franchisor enters into new markets in different states without a large capital expenditure. By franchising, they can expand into markets which would be virtually impossible to develop from their own base of operations by utilising the franchisee's localised contacts and understanding of the new markets.

10. FAILURE OF UNITS: 

If a franchisee fails there is a loss of royalties to the business owner, however the loss is not as significant as if it were a company owned store. This loss is only the Royalty that would have been generated for them from the franchise operation if it had succeeded. Many times it is possible to replace and ineffective unit owner with a new operator and keep the Royalty from the established business flowing to the franchisor.

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