Benefits to Enter the World of Franchising
The primary benefits for various companies which join franchising would include motivated management, capital, speed of growth and risk reduction but there are several other benefits too. A really common barrier to expansion which is faced by small businesses today is the lack of access to capital. Prior to credit tightening of 2008-2009 and also the new normal which ensued, entrepreneurs usually found that the growth goals outstripped such ability to fund them.
Know that franchising is actually a different form of capital acquisition and this offers some advantages. The main reason why a lot of entrepreneurs would opt for franchising is the fact that this would allow them to expand without such risk of debt or cost equity. The franchisee would provide all the capital needed to open and also operate a unit, this would allow the company to grow with the use of resources and others. Through the use of the money of other people, the franchisor can grow hugely unfettered by debt.
Moreover, since the franchisee is the one to sign the lease and also commit to various contracts, franchising would permit expansion with no contingent liability. Such would reduce the risk to the franchisor. This means that as the franchisor, you don’t just require less capital in which to expand but the risk is actually limited to the capital which you invest in developing the franchise company. This is an amount that is usually less than the cost of opening another company-owned location.
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There is also motivated management which is another advantage. You have to know also a stumbling block that face so many entrepreneurs who want to expand is finding and keeping good unit managers. Often, the business owner would spend months searching and training a new manager and just see them leave after or be hired by a competitor. The hired managers are employees who may have such commitment to their work that makes supervising the work from a distance a big challenge.
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However, franchising would allow the business owner to overcome the problems through substituting the owner for the manager. There is no person who is more motivated than someone who is invested materially in the success of the operation. A franchisee would be the owner and his life’s savings is invested in the business. The compensation would come through profits. A combination of such factors will have various positive effects on the unit level performance.
By franchising, the franchisor is able to function effectively with a much leaner organization. Since franchises are going to assume different responsibilities which are shouldered by the corporate home office, then the franchisors can leverage the effort to minimize overall staffing.