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Advantages of Franchising
If you are keen to own your own business then now is the time to start looking. All indications are that business is on the upward trend and so there is no better time than now.
A successful business requires the right ‘formula’ which is made up of everything from product range, promotional strategy and pricing, to location, resourcing and the use of technology and systems. This is the major reason people buy franchises. They buy the experience and the ‘formula’ from the franchisor that minimise the risks and increase their chance of success.
Further, franchising has another key inherent benefit that influence franchisee success. The franchisor is reliant on your success to reap rewards, thus there are incentives for the franchisor to assist you in achieving those rewards. Good franchising is a partnership between franchisee and franchisor, and well-structured franchise systems ensure that franchisors have the necessary incentives, as well as legal obligations (via the Franchise Agreement) to provide you with the level of support that an independent business owner would find it hard to achieve.
Some of the more specific advantages to franchisees are as follows:
Good Franchisor’s provide the specialised technical or business knowledge needed for the initial and ongoing training.
2. Ongoing Guidance and Support Services
The benefit of the franchisor’s experience assists considerably. This ‘support’ can be given in a number of ways and covering a number of areas:
a. Set of operating manuals/handbooks for both franchisee and staff (if relevant).
b. Site appraisal, selection and help with securing the site (where relevant).
c. The fit-out of premises and/or vehicles (as appropriate).
d. Recruiting and, managing staff.
e. Product selection, sourcing and pricing.
f. Targeting, selling/securing and satisfying customers.
g. Dealing with suppliers, landlords, financiers, strategic alliances, competitors etc.
h. Promoting the business.
i. Access to key franchisor personnel or external professionals associated with the network.
j. Access to market information and research available from both the franchisor’s research and development and collected from other franchisees in the field.
k. Troubleshooting, and helping the business through the inevitable bumps and growth.
l. The selection and purchase of equipment for the outlet, vehicle or office.
m. Guidance with the harnessing of technological advancements.
Generally, the franchisee will benefit from the already established brand under which the franchisor and the franchise network operates. Thus the reputation which the franchisor has established provides franchisees with an automatic advantage in attracting customers.
Franchisees receive the benefits of product cost reductions as well as advantageous costs on services such as insurance, IT support, vehicle leases and stationery.
Due to the advertising or marketing contributions of all franchisees (as well as the franchisor in some cases), the budget for the development and placement of both brand advertising and promotional initiatives is extensive, and reduced rates for media placement and material production can be negotiated on your behalf. This means that a franchisee’s dollar expenditure can go a lot further and achieve a lot more than an independent business owner.
6. Minimisation of Capital Expenditure
The franchisor should always ensure that the investment in capital equipment required is minimised. Whether it be in machinery, equipment, fit out or stock the franchisor should be able to direct you to the optimal package, both at set-up, and thereafter. The franchisee will benefit at the initial set-up and on an ongoing basis.
7. Use of Intellectual Property
The franchisee has the benefit of the use of the brand name as well as any copyright, trade secrets, patents, systems, processes, formulae or recipes.
8. Territorial Guarantees or Exclusivity
The grant of a franchise often includes the right to an exclusive territory. There can sometimes be the right to a nominal territory under which right any other franchisee doing work in that territory, or for one of your normal customers, must pay the territory holder commission of some sort. Guarantees of non-promotion within the territory by other franchisees or the franchisor are also common.
Often, franchisees find it necessary to obtain finance for the purchase of their business, or for overdrafts or lines of credit. This can often be on more advantageous terms because of the strength and reputation of the business, the extensiveness of the network or the strength of the franchisor.
10. Asset Growth
Buying a business of any sort allows a proprietor the opportunity, if good results are shown, for a tax-free capital gain on the resale of the business. Buying a new franchise (often call a ‘green fields franchise’) allows for a potential capital gain through the increase in the value of ‘goodwill’ over the amount paid initially as the initial franchise fee.
Because the franchisee’s business has the inherent advantages of franchising helping to achieve success, this gain can often be greater, or achieved more quickly. In addition, the business grows in value due to the growth (and hopefully corresponding success) of the network as a whole.
Article Written by Brian Pankhurst - Business & Franchise Broker at LINK Christchurch & South Island