Franchising Business Model Provides Easier Access To Startup Capital


Arguably, the main reason that franchising has thrived for decades and continues to expand is that it benefits both parties. There are two main parties in a franchise agreement—the franchisor, or main company like Starbucks franchise whose brand and operational methods are being tapped, and the franchisee, or potential investor to a given franchise.

When done correctly franchising works out in the franchising company’s favor and yours too. The reason is that franchising allows you to run with a proven method and gain a foothold in promising markets that a franchisor’s area developers have scoped out for your benefit.

On the other end, franchisors benefit from the added brand awareness, market share, fresh perspective, economies of scale, and ongoing royalties routinely filtering into their business. It’s a win-win when it comes to expanding hot dog business through franchising.

Reasons Franchising Is A Great Business Model

In many respects, franchising is the ideal business model because it streamlines processes that are potential stumbling blocks for franchisees or investors just starting out. It also relieves you of the worry surrounding PEO services.

Just imagine things from the perspective of an investor who has to consider whether to fund a proven business model versus another investor considering funding for a perilous startup.

Seamlessly Get Valuable Assets

Franchisors provide marketing, site selection, and financing help to franchisees right from the outset while allowing franchisors to gain more market share without sacrificing the methods that got that particular company to where it’s at.

Franchising is really about a synergistic give-and-take process between franchisors and franchisees, not dissimilar from crowdfunding finance.

The one-time franchise fee and ongoing royalties that franchisees pay to the franchisor are, in turn, funneled back towards the franchisee’s benefit in the form of training, support, marketing, research, and potential expansion opportunities.

Easier Access to Startup Capital

Expanding an existing business through franchising is definitely a more assured way of achieving greater capital to leverage towards realizing your dreams. Franchising in general, though, increases the chances that you’ll get the startup funding you need.

Most franchises have reasonable liquidity and net worth requirements that themselves are good indices for banks and private lenders. If you look at food franchise opportunities, the requirements to get involved are very strict.

They know that you’re a safe bet; and you’re an even safer bet from the perspective of a private lender since you’re going with a respected franchise that’s outlasted the competition through streamlining its hiring, training, site selection, operational, and marketing practices.

Franchising Reduces Risk for Everyone

Both from the perspective of loans and capital acquisition franchises work for everybody. Franchises consistently outperform the larger economy because they allow all parties to reduce their risks and capitalize on a system that simply gets results. From both an expansion and risk management perspective, franchises just work.

Lenders are more assured that their loans will be paid back; franchisors reduce their contingent liability through having franchisees sign a franchise disclosure document and essentially self-fund their franchise locations; and, lastly, franchisees benefit from all the help (marketing, etc.) and proven business model that the franchise brings to bear.

Quickly Seize New Opportunities

Investing in a franchise allows you to get in on exciting opportunities. With a sole proprietorship, you might have to spend time developing a retail business plan from scratch, convincing other investors that your idea is worth their time, and dealing with everything from equipment rentals to space leasing without any outside direction.

That can be incredibly stressful, and it can waste a lot of time that would be better used actually getting down to business in a fertile market. Instead, consider how nice franchising is: You’ll have a much shorter time to market and glean assistance from area developers in site selection or expansion later on.

Gain Diversified Revenue Streams

On that last point, think about it, would franchisees queue up to become multi-unit if doing so didn’t provide huge benefits like the chance to expand and diversify your revenue streams?

Becoming multi-unit also allows you to expand into fresh markets and protect your overall investment by potentially parlaying your success in one area into developing a greater market share in another.

Whether or not you choose to go multi-unit, most franchisees are bringing a host of goods and services to customers. You can even expand your current business into a franchise; so, for instance, expanding a hot dog business through franchising is completely possible.

A Known Brand and Predictability

When you invest in a franchise you’re essentially receiving the intellectual property rights of a known, respected brand.

All of this is highly predictable as well since you’ll sign your franchise disclosure document and receive an operational blueprint in addition to hiring, training, advertising, and marketing assistance. Predictability is not a feature of opening an automotive start up or other brand new business, so keep this in mind.

Keep In Mind

When you decide to purchase a franchise, you need to remember that franchisors are not likely to be honest about the shortcomings of their business. They are trying to sell the business to you, after all. Make sure to make it a point to talk to other franchise owners about their experiences with the franchisor. This is more likely to provide you an accurate image of what life as a franchisee will be like day-to-day. This way, you will be able to anticipate franchisee challenges before they arise so that you can prepare yourself and your business to navigate them. Make sure to speak with a franchisee when considering whether or not to purchase a franchise.

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