Franchising is a highly successful method of distribution of goods and services so it works for the brand but why does anyone choose to buy a franchise?
Of course it’s a global phenomenon than began in the US and has developed in various forms across the world with some of the most recognised brands on the planet: McDonald’s, Subway and KFC for instance.
Franchising has inspired generations of individuals to invest in building a business for themselves – with a little help along the way.
In Australia, according to the Franchising Australia 2014 report by the Asia Pacific Centre for Franchising Excellence, the franchising sector is estimated to be worth $144bn – that includes vehicle and fuel sales – with a possible 1180 systems trading as franchised businesses.
So why exactly is this business model so popular?
‘In business for yourself but not by yourself’ that’s a mantra of the franchising sector. And that pretty much sums up the appeal – franchisees have the back-up and experience of the franchisor team and other franchisees which can prove invaluable.
1. It just keeps growing
This is a billion dollar sector that constantly embraces new systems and innovations across every imaginable industry.
2. Minimised risk
There is never a guarantee of success with a franchise – or any other business operation – but working with a tried and tested system makes it a little easier to get established and avoid some of the major mistakes of business ownership.
While it may not be perfect, a franchise system cuts out the need for an individual business owner to create their own processes. What could be better than setting up a business with marketing tools, branding, uniforms, recipes or instructions and an operations manual all ready to go?
3. Training
If you haven’t run a small business before, how are you going to learn the basics? Set up your own initiative and you will learn on the job. There’s an element to that in franchising too, of course, but a particular advantage of setting up as a franchise is the initial training that teaches you the key elements of running the business.
Many franchisors offer ongoing training that means franchisees can keep updating their skills and knowledge bank. And franchisors may get involved in training franchise employees too, depending on the system.
4. The power of the brand
To set up your own brand and develop customer recognition and loyalty can take years. So it makes sense to harness your talents to an existing brand. In franchising, someone has already built and established the brand for you!
5. Competitive advantage
The franchisor is not the only valuable source of information for a franchisee. Other franchisees in the network can offer advice and share their experiences. Business development managers or field support managers are usually on hand to keep you on track with your business plan and to find the most effective ways to achieve business success. And when business picks up for your brand because of new and improved methods, franchisees following the lead will benefit too.
6. Work on the business
Working on and not in the business is a common theme in franchising. And because so many systems and processes are already in place franchisees can focus on the elements of the business they enjoy, and spend time building up this asset.
7. Access to finance
We all know that banks are inherently cautious, so if you’re starting out with a brand that has already performed well and has a strong reputation, you stand a better chance of getting the funding you need to buy and then grow the business.
8. Access to buying power
In a franchise you have the power of the network behind you and buying power can be invaluable.
This is equally effective whether you are sourcing ingredients and merchandise, or wanting to secure a financially-favourable rental agreement with a national landlord by accessing the negotiation skills of the franchisor.
9. Access to innovation
In a good franchise business the franchisor is investing in research and innovation to ensure the brand, the systems and the network are staying competitive and relevant.
10. Expansion plans
Franchisees can grow their businesses by adding customers in a territory or by adding territories or stores to the existing business. Many franchise systems see value in embracing multi-unit operations for their successful franchisees.
11. Mentoring
Franchisees can access help from their colleagues whenever they like, but a more formal mentoring program might well be available too either with franchisees in the network or from an external source.
12. Rules and regulations
It’s a fundamental rule of franchising that compliance must be adhered to but this is really an advantage,
not a disadvantage.
There are guidelines for both systems and the sector.
Franchisees need to be prepared to be compliant and to accept that systems created have proven successful – and buying into the processes is one of the reasons for buying a franchise.
Rules and regulations of the sector overall are embedded in the Franchising Code of Conduct. This Code sets out processes for buying and selling franchises, and for the behaviour of both franchisors and franchisees throughout the business relationship.