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What Most Entrepreneurs Don’t Know About Franchising

Entrepreneurs are risk-takers and profit-seekers, always looking for the next opportunity to grow their business empires and their personal net worth. Modern entrepreneurs know that opportunity comes in many forms, and franchises are a great way to take your business concept and grow into a larger, more successful network of independently owned and operated businesses.

Franchising provides opportunities to a variety of entrepreneurs, from emerging business owners to seasoned veterans. Still, many are unsure about franchising opportunities and the benefits they present.

Franchises Are Independent

Every one of the roughly 745,000 franchise establishments in the United States is an independently-owned and operated business. Regardless of the name on the door, franchises, by definition, are independent and enter into a licensing arrangement with the franchisor. Franchisees invest their own capital to own and operate each unit. Even some of the biggest household names fall in this category, like McDonalds and Sports Clips.

Franchisees pay fees to the franchisor to use the name and branding, and in return, the franchisor offers support with training and operations. This model yields higher rates of success because of the standardized practices. Business owners can lean on the franchisor for support throughout the process, while still keeping the benefits of business ownership and the upside of the risk-reward equation mostly to themselves.

Advantages of Franchises

entrepreneur holding folder

Franchises provide emerging entrepreneurs new growth opportunities, whether they’re starting their first business or breaking into a new industry. The franchise model eliminates various barriers to entry and offers a tried and true profitable concept to franchisees. Additionally, franchisees have a stake in their communities, which may allow the franchisor to break into new, previously unreachable markets with a business partner with skin in the game.

Franchisors benefit from franchising due to its low capital growth option. Franchisees invest their own capital to build their businesses, and franchisors can be more hands-off during this growth. This creates a low-cost path to expansion while creating business ownership opportunities for entrepreneurs.

The franchisor then has time to focus on overall expansion efforts and business health rather than day-to-day operations. They can turn their attention to long-term business objectives like improving and enhancing their franchise systems, processes and procedures and growing the brand into a nationally recognized name.

The Right Fit for Franchising

business owner opening storefront

Not every business is built for franchising. Consider the business concept: The more complex it is, the more difficult it is to replicate across a system consisting of hundreds of locations run by a variety of business people with different skill sets and backgrounds. Similarly, if the concept is too simple, it may be too easy for competitors to copy. A happy medium that provides a healthy ROI for franchisees is the best candidate for franchising.

Additionally, not every entrepreneur is fit to be a franchisor. Consider how comfortable you would be giving up control of your day-to-day duties. Rather than spending much of your time on location, you will likely work to generate franchise owner leads and develop training and operations for new franchisees. Know that the franchise business model can be very different from the model you have come to know. This transition, and how a franchisor manages it, can make or break a franchise concept.

With 30 years of franchising experience and more than 800 franchise owners representing more than 1,200 locations for five brands, Winmark Franchise Partners can help you grow your brand through sound strategy and expert franchising advice. For more information, download our eBook, The Entrepreneur’s Guide to Franchising [hyperlink] or contact us here or at (844) 452-4600.