Why The Big Fuss About Franchising

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Franchising is an excellent business approach when done correctly, as it has own unique set of problems. The franchisor has to put its own business at risk, invest time and resources and train franchisees. In the beginning, the new franchise location may lose money and the franchisor does not have total control over the franchise location's business operations.

Meanwhile, the new franchisee has to find the right business opportunity and assume risk, especially if the franchisor business is young. Some franchisees will experience tight control from the franchisor, while other franchise owners may have to hit the ground running with little help.

With all these potential drawbacks, you may be wondering why franchising is such a popular, actively growing market. The answer lies within the rewards for both the franchisor and franchisee, which are apparent once the problems have been overcome and all the kinks worked out.

A franchisor doesn't have to invest their money to expand and grow their business in a specific market, as the franchisee funds the location. The franchisor has a larger and more complex business operation with fewer employees than a corporation would need, giving the franchisor a higher capital return. Foreign expansion becomes easier, as the franchisor does not have to deal with local regulations and requirements or manage all the aspects of the operation.

A franchisor is giving the franchisee the keys, so the franchisee is the franchise location owner instead of a manager and, therefore, more connected to the business. Increased numbers makes it easier to the franchisor to negotiate group deals and rates on items such as inventory from suppliers and other vendors.

Franchisees benefit from the experience of the franchisor and the strength of an already-existing franchise brand. A franchisee receives training and other valuable business help from the franchisor, allowing him to avoid potential mistakes and disasters right from the start. With a recognized franchise brand, the franchisee already has a built-in customer base he would have to spend years developing on his own.

Franchise location is another significant advantage to franchisees. While an independent business owner may struggle to find a popular location, a franchisee without any experience can get a great spot for his franchise location with as part of the franchisor's network. He also has advertising resources in the region that are greater than he would be able to afford on his own and access to research and development.

Franchising done correctly doesn't just benefit franchisors and franchisees. Customers have more access to quality franchise products and services, landlords get new tenants and suppliers have increased and steady sales.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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