The primary advantages for most companies entering the realm of franchising are capital, speed of growth, motivated management, and risk reduction — but there are many others as well.
Capital
The most common barrier to expansion faced by today’s small businesses is lack of access to capital. Even before the credit-tightening of 2008-2009 and the “new normal” that ensued, entrepreneurs often found that their growth goals outstripped their ability to fund them.
Motivated Management
Another stumbling block facing many entrepreneurs wanting to expand is finding and retaining good unit managers. All too often, a business owner spends months looking for and training a new manager, only to see them leave or, worse yet, get hired away by a competitor. And hired managers are only employees who may or may not have a genuine commitment to their jobs, which makes supervising their work from a distance a challenge.
Ease of Supervision
From a managerial point of view, franchising provides other advantages as well. For one, the franchisor is not responsible for the day-to-day management of the individual franchise units. At a micro level, this means that if a shift leader or crew member calls in sick in the middle of the night, they’re calling your franchisee — not you — to let them know. And it’s the franchisee’s responsibility to find a replacement or cover their shift. And if they choose to pay salaries that aren’t in line with the marketplace, employ their friends and relatives, or spend money on unnecessary or frivolous purchases, it won’t impact you or your financial returns. By eliminating these responsibilities, franchising allows you to direct your efforts toward improving the big picture.
Improved Valuations
The combination of faster growth, increased profitability, and increased organizational leverage helps account for the fact that franchisors are often valued at a higher multiple than other businesses. So when it comes time to sell your business, the fact that you’re a successful franchisor that has established a scalable growth model could certainly be an advantage.
Staffing Leverage
Franchising allows franchisors to function effectively with a much leaner organization. Since franchisees will assume many of the responsibilities otherwise shouldered by the corporate home office, franchisors can leverage these efforts to reduce overall staffing.