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10 Benefits of Franchising
- It is the Most Successful Way to Grow a Business.
With franchising, a business can be grown without a huge capital investment or financial liability towards leases or personnel.
- Effective Controls.
A franchisor's operations manual addesses operational issues leading to efficiency and customer satisfaction.
- Franchise Fees and Royalties.
Franchisor is able to charge an initial franchise fee, usually between $15,000 - $50,000 when the franchise agreement is signed and an ongoing royalty, which is normally 5-15% of the franchisee's gross sales volume.
- Low Capital Outlay.
When a franchise unit is opened, the burden of capital is shifted to the new franchisee. All costs of land, building, improvements, equipment, furniture, furnishings, inventory, supplies, and working capital are the responsibility of the franchisee.
- Self-Motivated Operators (Franchisees).
As a general rule, an owner/operator is much more dedicated than the average corporate employee because he or she has invested money in the franchise.
- Lower Failure Rate.
Only 2-4% of franchisees of a proven franchise concept fail, whereas 90% of new businesses fail within the first five years of operation.
- Payroll Taxes.
Unit employee salaries, tax and tax reporting burdens are shifted to the franchisee. The franchisee is an independent contractor and his or her employees are not your employees, OR your responsibility.
- No Direct Liability for Franchisee's Actions.
Generally, franchisor is not responsible for the franchisee's actions or those of the employees of the franchise.
- Quick Market Penetration.
The franchisor enters into new markets in different states without a large capital expenditure.
- Failure of Units less significant.
If a franchisee fails, there is a loss of royalties to the franchisor; however, the loss is not as significant as if it were a company owned store. In the event of a failed unit, most franchisors simply resell the failed franchise to a more qualified franchisee.
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