Is Franchising Your Company Worth It?

There are more than 750,000 franchises in the United States. And, all of these locations employ more than eight million people across the country.



Franchises are big. But, the funds that franchise owners can get are even bigger.

By growing your business into a franchise, you'd be opening yourself up for economic improvement, business growth, and innovative changes. But, is franchising really all it's cracked up to be? Why franchise?

Well, that really depends on when you decide to franchise. Choosing when to franchise can determine the outcome of your business as a whole.

So, let's talk about the pros of franchising and the cons of franchising. You can use these to determine when the right reasons to franchise are on your side. Let's dive in.

Pros of Franchising

Expanding your business through franchisees may be the best business move for you right now. You may have been thinking about expanding but weren't sure how to do it.

Franchising allows business owners to expand comfortably. Thus, it makes franchising an attractive option for business owners who don't want to have to worry about the ins and outs of opening a new location by themselves.

Let's talk more about that.

1. You'll Be Able to Hire from a Larger Pool of Candidates

The first great pro of franchising is the candidate selection pool. Most business owners seek to open locations across the country. Thus, they're expanding their candidate selection pool from their hometown location to the entire country.

Because there are more people to choose from, you're going to have more competitive candidates. Plus, franchisees tend to be skilled and hard-working individuals. So, you'll have a prime list of candidates for your next location.

2. You'll Have Access to Funds for Expanding Your Company

This is one of the main economic reasons to opt for franchising over other opportunities. Franchising makes it easy to get expansion capital for your business. In other words, you're going to get money to grow your business easily.

This is because your franchisees will pay money to buy outlets in your chain. Thus, you can grow the number of locations without having to dip into your own capital. And, you won't have to worry about loans.

Some franchised companies do opt to assist the franchisee in purchasing the outlet. In these cases, the franchisee will pay for the rights to the business and perhaps some costs for the building and supplies.

But, the business owner may front a flat amount of money to assist the new franchisee. After all, the new location is more likely to succeed if you're financially backing it. And, this will show the franchisee that you're supporting them with more than the rights to your company.

By offering financial support, you're building your relationship with that franchisee. In return, they're more likely to work harder for your business.

3. You'll Have Minimal Growth Risk

Usually, the risk surrounding the opening of a new location is enough to turn business owners away. But, franchising minimizes this risk so much that franchisers are constantly looking for new locations.

Franchising generates a high rate of financial return for the franchiser. And, you'll have little risk in the process.

Even if you are providing some funds to the franchisee, you're likely to earn high royalties from the sales from that location. So, you'll be able to make that money back and more. 

If you opened the new locations yourself, you wouldn't be able to say the same. You'd have to put more money into those locations. Thus, getting the return back would be more difficult.

Cons of Franchising

Franchising comes across as this epic business goal that every business owner should look to complete. It's as if opening more stores across the country always leads to success.

But, it doesn't always happen this way.

Franchising isn't easy, and you're bound to hit some bumps in the road. So, let's talk about some of the hardships that you may encounter while you're expanding your business into a franchise. Then, we'll tell you how you can overcome these disadvantages.

1. You May Have Less Control Over the Franchisees

Unfortunately, any locations that franchisees own aren't yours to manage. Yes, you own the company. But, that doesn't mean that you can make every single operational decision at each location.

Franchises are independent businesses.

With this, these franchises may have different goals from the overall company. Conflicting ideas and methods may lead to conflict and even legal trouble.

If you're going to start franchising, you need to be comfortable with different methods and ideas.

2. You May Experience a Weaker Community of Employees

One of the most common pitfalls to franchising is franchisee free riding. This refers to when franchisees free ride off of the work of other franchisees.

For example, one franchisee may believe that they don't need to invest in advertising for their business. Other franchisees are advertising for the business. So, because they own a different chain of the same business, they're going to reap some of the benefits of that advertising without having to put the work in.

It's important to discourage this kind of behavior. Although you can't stop it completely, you could help decrease these kinds of behaviors by recognizing that you know that they happen.

You could also include specific rules in the franchising contract. This is a great way to have some kind of say in what the business does.

When You're Ready for Franchising

When you're ready for franchising, you'll know it. It may be a scary idea. But, you'll have the urge to take the next step with your business.

And, franchising is that next step.

If you think you're ready, you can count on our team at Strategic Franchise Development. We can help you grow your business through franchising. And, we're here if you have any questions about the process.

Overcoming the disadvantages to franchising will become more obvious as you learn. The only way to start is by diving in.

Contact us today to get started.