Benefits of Franchise Ownership over Sole Proprietorship

04Apr

As the old adage goes, ‘In business for yourself, but not by yourself’, it describes the benefits of franchise ownership. In this post, we are also going to talk about the measure of validity to that statement and how this double-edged sword can be leveraged in the best possible way.

Kick-starting a business venture can be the most overwhelming thing to do, for mostly people are confused whether they should start a business on their own or buy a franchise. Well, by evaluating  adversities and benefits of the franchise ownership, you can make a mature decision. For any business initiative, a well-thought out idea followed by strategic plan (marketing, branding, sales, hiring etc.) and ensuring adequate financial support is needed. Now this can look exhaustive. Hence, a simpler yet proven option is investing in franchise business. 

In this post, apart from listing out the advantages of buying a franchise, we will also be discussing how it works, the step-by-step guide to start and much more. Let’s dive in to see how owning a franchise is better than starting a business of your own. 

What is a franchise business?

As per Wikipedia, 

Franchising is based on a marketing concept which can be adopted by an organization as a strategy for business expansion. Where implemented, a franchisor licenses its know-how, procedures, intellectual property, use of its business model, brand, and rights to sell its branded products and services to a franchisee
. In return, the franchisee pays certain fees and agrees to comply with certain obligations, typically set out in a Franchise Agreement.

A franchise is a type of business endeavor that is purchased and operated by an individual often referred to as franchisee. However, it is always looked upon as the original brand and controlled by the original company known as the franchisor. Many of the stores and restaurants that you visit  every day are franchises including McDonald’s, Subway, KFC, Ace Hardware, Pizza Hut, Hilton Hotels etc

When you are purchasing a franchise, you are actually buying the rights from the parent company to operate it by leveraging a proven business model, whilst conforming to the price and services offered by the brand. You also full access to the company’s trademarked components such as logos, slogans and signage. 

How to become a franchisee?

If you’re interested in purchasing a franchise then this is the most useful question to look out for answers. In order to become a franchisee, you’ll have to pay an upfront franchise fee. You then get the right to use the following –

  • The company’s brand name
  • The company’s business system
  • The operational manual
  • The marketing materials
  • The brand’s operation software
  • The company’s proprietary materials
  • Exclusive geographical territory to operate the franchise
  • 5-10 years of contract with the company

5-step plan to buy a franchise 

Go through this infographic to understand the 5-step plan to buy a franchise and the crucial factors to consider and determine before kick-starting the venture –

5 step plan benefits of franchise ownership

How does a franchise work?

There are usually two types of franchising – product franchising and business format franchising

  1. Product Franchising –In this type of franchising, the franchisee gains to right to use the company’s name and trademark so as to operate the franchise. The company provides the products to the new owner for selling under the parent brand name such as a car dealership. A car showroom owners get permission to sell certain brands of cars, but the store operates independently. Unlike McDonalds and KFC, in this scenario, the owner, say, the car dealer can localize the name of the franchise.
  2. Business Format Franchising – In this type, the franchisee receives regular supplies from the company apart from the rights to operate under the parent name. This is mostly seen with the cases in fast food chains. For example, the franchisee of McDonald’s receives regular supplies of raw materials for burgers and fries to create the McDonalds copyright food items and sell them under the brand name. 

Benefits of the franchise ownership over having a business of your own

Below are some of the reasons you might consider operating a franchise rather starting a business of your own –

  1. Brand name 

Brand plays a huge role behind the success of any company, as it is the major reason behind customer experience and retaining of the consumers. People trust brands and regularly come back to what they know and love. In fast food sector, the services provided by the franchise also plays a huge role. If customers are satisfied with the kind of service they receive, they prefer going to the particular location over and over again. While the franchise gets the privilege of operating his business under the brand name, he also simultaneously contributes to the sustaining of the brand through innovative and effective business strategies, a great team and useful resources. 

However, before jumping onto any kind of contract, you should always do a thorough research and completely understand the terms and conditions which should not come in between your certain set of preferences and likenesses. 

2. Tries and tested system

A company can never create branding overnight. It takes meticulous methods, strategies and experience to build a brand. Once the company’s name is established in the market, it becomes easier for the franchisees to trust this proven system and can hugely benefit from their business model and operation method. This can be very comforting for any business owner, as he does not have to invest money and time on coming up with a certain strategy to market his business. 

3. Low cost of goods

One of the major benefits of franchise ownership is you do not have to break your bank on the goods. For multinational brands, it is easier yo get inventory at a considerable discount for buying in bulk as compared to individually dealing and trying to bargain with the suppliers. 

4. Great support team

You are not the only franchisee of the company. There are several others like you who have invested and operating the franchise. Whenever you face any kind of challenges, you can always look up to them for guidance. Besides, the franchisor’s support team can always be accessed to help with software, sales or marketing related issues. 

5. Financing

In order to help enthusiastic investors like you, most franchisors provide convenient financing programs which you can avail to pay the initial fee and manage the start-up costs. They have tie-ups with various banks and you can easily avail a loan under their names. 

So, those were some of the major benefits of the franchise ownership. You should always consider looking at both sides of the coin. Since, we had earlier referred franchise business as a double edged sword, the disadvantages should not be ignored. Evaluate everything, dive deep into the market research and then make a profound decision to make your aspiring business venture a success. 

At Sparkwork, we help you effectively manage your brand through our proven franchise management software. Click here for more details. And should you have any doubt related to franchising, we are always there to guide you. 

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