According to an industry forecast published by IHS Economics, the US franchising sector’s GDP output will have grown to $552 billion by the end of 2016. This represents market growth of 5.6% compared to the same period in 2015. Currently, 795,932 franchise establishments operate across the US and some (especially fast food outlets) have operations in other parts of the world. With this in mind, you should consider a franchise for sale rather than starting your own business if you have an entrepreneurial inclination. Here are some of the top benefits of buying a franchise:
Proven Business Model
Franchising allows you to access and use a business model that has been tried and tested in the real world. This is important for several reasons. Firstly, new franchise owners undergo thorough training before and after starting operations. Secondly, franchisees receive advice and help on issues such as marketing, staffing, and complying with local business regulations. These efforts reduce the risk of business failure. Figures published by the US Bureau of Labor Statistics (BLS) show that only about 50% of small businesses survive through the first five years while the Small Business Administration (SBA) says 66% of all new businesses operate for at least two years. Common causes of business failure during the early days include lack of operational experience and financial indiscipline. As such, the guidance provided by franchises lowers the risk of early failure.
Although franchises retain some degree of control over their business models, franchisees generally enjoy a lot of operational freedom. For instance, you can use the same franchise to open outlets across multiple locations, states, or even countries meaning you do not have to restrict your entrepreneurship dreams to a single location. Nevertheless, the operational regulations that franchises face even in the US vary from state to state. For this reason, it is wise to carry out thorough market research and consult financial and legal experts before opening a franchise in a new jurisdiction.
Most franchises are established brands with loyal customer bases that you can leverage to boost foot traffic and revenues. Moreover, associating with a well-known brand gives franchisees a huge competitive advantage over rivals. For example, ads run by parent franchises will also have a trickle-down effect on franchisees. However, any scandals involving another franchisee or the parent company will reflect badly on anyone involved with the same brand. To reduce this risk, the rule of thumb is to look for a franchise that has been operating for years and has a solid reputation as well.
Franchising enables entrepreneurs to access industry networks that are inaccessible by others. This includes invite-only conferences, trade fairs, industry-specific professional bodies, and training programs. For instance, auto dealership franchises regularly organize brand-specific training programs for both salespeople and mechanics. The contacts you make via these networks can help you improve service delivery and broaden your business footprint. It is also worth noting that industry insiders can give you so called “street smarts”(on-the-ground operational tips/advice) that you can never learn in a classroom setting.
If you are looking for a hassle-free business, franchise opportunities are the right choice. For instance, you can open a franchise outlet and start receiving customers immediately without spending thousands of dollars on marketing and brand activation. Moreover, you do not have to worry about supply chain logistics because most franchises provide the raw materials or finished goods associated with their brands. Remember many companies have outsourced manufacturing meaning entrepreneurs who go it alone may have to travel overseas to evaluate the state of manufacturing facilities. The costs related to these engagements (travel, accommodation, food) can quickly add up to thousands of dollars. Luckily, franchises take care of these logistics, thereby giving franchisees the freedom to focus on purely on-site tasks.
Franchises are renowned for offering a wide range of ongoing support services including regular staff training. What’s more, many franchises maintain in-house teams of real estate professionals who can help new franchisees identify and get the best commercial space deals. Without this support, franchisees may struggle to maintain the service delivery standards and product quality associated with the parent company. At the same time, franchise companies can help entrepreneurs access financing solutions that fit their operational goals and needs.
Economies of Scale
Unlike small business, franchises enjoy economies of scale, especially when negotiating with product suppliers. This means franchisees can easily access products at prices that are markedly lower than the prices offerings accessible by individual small business owners. In turn, franchisees can pass on these cost benefits to their customers.
Franchising is a popular business model that is the main source of income for thousands of franchisees in the US. Compared to starting your own business, franchises are more beneficial because they are based on proven business models, are known brands, they offer ongoing support, enjoy economies of scale, are hassle free, and enable entrepreneurs to access hitherto inaccessible industry networks.