Thursday, March 26, 2009

Advantages of Franchise Ownership

The benefits of franchise ownership are only as strong as the franchise you select. Generally speaking, the benefits can be classified in several broad areas:

1. Overall Competitive Benefits: The public has become accustom to a certain level of quality and consistency from brand name franchised locations. Whether you believe a company's product is superior or mediocre, the secret for their success is usually that it is consistent. The consumer knows the level of quality they will receive in every location they visit. This brand identification often provides the new franchisee with an established customer base accustomed to shopping under the company's brand and that makes it easier to compete with the well-established independent operators and even against other well-established franchised competitors.

2. Pre-Opening Benefits: Franchisors have made mistakes. Another advantage of franchising is that they have survived their mistakes and can guide their franchisees not to make the same mistakes. Upon joining an established franchise system new franchisees generally receive comprehensive initial training in the operating of the franchise system, its product, services and methodologies. While the cost of entrance into a franchise system includes a franchise fee - often cited as a disadvantage - the franchisee benefits from a host of services including operations manuals, site selection, store design, construction programs and reduced cost of equipment to name just a few.

Additionally, they have not only their franchisor as a seasoned partner to ask questions to but the network of other franchisees within the system that can be of assistance. In essence, the major stumbling block for pre-destined failure is removed by the franchisor - lack of preparedness. Most independent businesses don't fail because their product or services were inadequate. They fail because they did not anticipate problems. Chief among these is working capital. Well developed franchise programs ensure that before they accept a new franchisee that they have adequate capital, even after servicing their debt and taking into account seasonally adjusted cash flow. Without this guidance many independent operators fail soon after opening.

3. Ongoing Benefits: In exchange for paying an ongoing royalty and other payments, franchisees generally receive continual training programs and other ongoing home office and field support and assistance.

Group purchasing power is a major benefit of well-developed franchise systems. Frequently buying groups established by the franchisor allow the franchisees to benefit from a lower cost of goods, equipment, and supplies than that available to independent operators.

Leveraging off the contributions of the entire franchise system, franchisors are able to create professionally designed point of sale, advertising, grand opening programs and other marketing materials that independents could never afford. Franchise programs can also afford to continue to modernize the system through ongoing research and development and the test marketing of new products and operating programs.

Franchising is a critical mass business both with a market and system wide. The spending power of the individual dollar, combined with their fellow franchisees within their market and the rest of the system enable franchises not only to dominate local markets and established independents but also to compete effectively against the established large chains.

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