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Benefits of Franchising

What are the benefits of Franchising?

Any business start-up method, whether franchising or going it alone has benefits and drawbacks. Knowing the bad points as well as the good ones is important if you're serious about franchising.

The good points…

One of the great things about franchising is that banks like to lend to you. This makes it an appealing option, as many people choosing to start a franchise will need financial help to get started. There is evidence to support this, banks with specialist franchise departments are prepared to lend a higher percentage of the start up costs – some as much as 70 / 75%. While this figure is not guaranteed it is a good indication that lenders view franchising as a safer route into business.

How much you can borrow from the bank will depend on a number of factors…

Your credit and employment history will have a bearing on what the bank is prepared to lend. If you're looking to borrow in excess of £25,000 then some form of security such as equity, stocks and shares, savings, etc will be needed. How much capital investment you can make will also influence the banks decision. Meanwhile the cost of borrowing i.e. higher interest rates, will dictate the amount you can afford in repayments.

Aside from the support of the bank, other benefits to choosing franchising include:

• Business survival rates are higher with franchised businesses. This is borne out by financial studies conducted by the likes of Natwest and Barclays bank over recent years.
• It is an established market with franchisees buying into a proven consumer market.
• An established business name means there is a history of success and stability for the franchisor.
• A proven business system gives franchised businesses a wealth of expertise and knowledge, with the majority operating very successfully.
• Invaluable ongoing help and support is provided by the franchisor
• There's a secure supply chain relationship that franchisors have built up over time.

The Drawbacks to Franchising

Like any business start up, franchising is not without some disadvantages. Knowing exactly what these are will help you make an informed choice.

One downside to franchising is that in order to trade under a particular brand of franchise you need to pay an initial lump sum as well as an agreed percentage for the period of the contract.

Another drawback is being bound by contractual obligations i.e. set working practices /procedure that need to be adhered to for the period you've signed up to. These working standards are in place to maintain a level of professional excellence. If franchisees under perform or fail to maintain high working practices this can have an impact on the wider franchise company.

But how you like to work, manage tasks or delegate may not be compatible with how the franchisors have set out their model. This is a key reason why franchising doesn't suit everyone.

Franchising is also, without doubt, less adaptable than other business models and is disadvantaged when it comes to responding to changing market conditions at local level.