What are the advantages of franchising?
You have a great business, and it is growing; except you don’t have time to open new locations for the growing demand, and you don’t want the burden of securing funds for the new locations. –You can expand without the risk of debt or the loss of equity and time.
Franchising can simply be defined as a method of distributing products or services. There are two main parties involved in a franchise system, namely; the franchisor, who establishes a brand Trade Mark or trade name and a business system; and the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system. Prominent examples include; McDonald’s, KFC, etc.
The concept of a franchise is surprisingly not unique to modern civilization, its inception dates as far back as medieval times (the Middle Ages) where local monarchs would grant licences to prominent members of society to take up certain functions on behalf of the monarch for a specific geographical area in exchange for the payment of a royalty fee by the licensee to the monarch.
Undoubtedly, the way and purpose for which a franchise is operated has seen great strides and refinement in recent times to an extent that some analysts hold the view that franchising provides the best model for conducting or entering into the world of business and entrepreneurship.
Owning a franchise or starting a franchise undoubtedly comes with a wide range of opportunities and benefits, the exploration of these benefits forms the subject of this article. A business owner that has built a brand and is gearing for expansion should explore the various benefits and opportunities that come with being a franchisor, which benefits and opportunities include:
- The capital required to expand the footprint of your business and brand can be acquired from the fees and royalties to be paid by franchisees, this allows the business to have an additional source of revenue and allows for rapid growth/expansion;
- The franchisor creates multiple sources of income from the franchising system, such as; initial fees, franchise royalty fees, training fees, service fees, advertising and marketing fees, administrative fees, rebates from suppliers, and the sales of products and supplies to the franchisees;
- The franchisor is able to cover a wider geographic area thus spreading its sphere of influence which gives the franchisor a competitive advantage in the market by taking a larger portion of the market share for the particular product or service provided;
- A franchisor will save on costs of production or providing a service as it is capable of buying in bulk and gaining discounts as a result;
- The franchisor brings into the company people (franchisees) who are entrepreneurs, full of motivation to succeed as they’re personal growth and development is directly linked to the success of the franchise; and
- From a logistical perspective the franchisor can utilise a smaller central organization system as opposed to a business that owns and operates all of its branches.
From a business perspective the advantages of starting a franchise are truly unquantifiable, as such, any business that has established itself and built a brand should consider starting a franchise for the many reasons listed above.
For more information contact jana@stegmanns.co.za