When considering the costs, investing in a franchise tends to be more expensive than starting a business from scratch. Despite this, being a franchisee comes with its own set of advantages and disadvantages, and the business model isn’t suitable for everyone. However, there are significant benefits when you invest in a franchise. Here are eight reasons why many people choose to invest in franchises.
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Recognizable Brand
When you invest in a franchise, you gain the right to trade under the established brand name of the franchisor. And that alone brings immediate advantages. First, it overcomes the reluctance of consumers to try unknown brands. Second, there is likely to be an existing loyal customer base for the brand. And third, it eliminates the early start-up phase of a business when sales are low due to a lack of brand awareness. A recognizable brand name will also make recruiting staff and negotiating with local suppliers easier.
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Reliable Supply Chain
Typically, a franchisee will source all the supplies and marketing materials from the franchisor. This arrangement simplifies the procurement process and allows the franchisee to benefit from lower prices because of the franchisor’s bulk purchasing power. Buying from the franchisor also ensures continuity of supplies.
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Banks Look Favorably on Franchising
Securing bank financing can be difficult for a brand-new startup lacking a track record. However, when you invest in a franchise, the challenge diminishes. Banks tend to view franchises more favorably because they provide a proven business model. While investing in a franchise does not guarantee loan approval, it does enhance your prospects. Lenders will still evaluate your credit history and the prevailing economic conditions. Yet, having a franchise agreement often eases some of the hurdles associated with obtaining financing.
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Training and Support
A franchisor has a vested interest in the success of its franchisees. Consequently, a franchisee can support in building their business and training employees. However, the level of support can vary, and there may be an additional cost for support and training services. So, understanding what levels of training and support are included in the package when selecting a franchise opportunity is crucial.
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Marketing Materials
When you invest in a franchise, you trade under an established brand name. Consequently, you save on the costs of developing a brand, such as a logo design and a brand awareness campaign. The franchisor will also provide free or paid marketing materials, and you may benefit from national advertising campaigns.
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Proven Business Model
Any new business start-up faces a degree of uncertainty. Market research and thorough planning reduce that risk, but, in most scenarios, a start-up still faces a wide range of unknowns. Not least of these risk factors is whether the business model will work in the real world. However, when you invest in a well-established franchise, you know that the business model has worked. What’s more, any shortfalls in the model will have been discovered and rectified, and the support mechanisms backing up franchises will have been established.
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Ongoing Product Development
Franchisors must keep ahead of the competition. Consequently, they invest heavily in research and development (R&D). It is unlikely that an independent business could devote even a fraction of the resources to R&D that a franchisor can. And franchisees benefit from that investment through new and improved products, keeping their franchise compatible.
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Greater Chance of Success
ABC News reported that over 85% of franchise businesses are operating after five years. But only 50% of independent companies survive beyond the fifth year of trading. So, there is a greater chance of a franchise surviving and expanding.
In conclusion, although the initial cost to invest in a franchise can be substantial, the benefits are noteworthy. You gain access to an established brand, ongoing support and training, and a proven business model. However, success is not guaranteed with a franchise. You must commit to working diligently to grow your business. Additionally, the restrictions imposed by a franchise agreement may be too limiting for some. Nonetheless, if you’re looking to start a business, investing in a franchise is a viable option worth considering.