9 out of 10 franchises run in profitability.
That’s why many people prefer buying a franchise to starting a business from scratch. So, you’re guaranteed to find franchisees by franchising your business. Yet, you may be reluctant to make this move as you’re uncertain of the gains you’ll get.
So, is it financially worth it to franchise your company?
Keep reading to learn the undeniable financial benefits of franchising your business.
Access to Expansion Capital
29% of small businesses fail due to a lack of sufficient capital. As a small business owner, it’s rational to fear that your enterprise faces the same fate. Although you can apply for a business loan, you feel it’s not the right way to fund expansion.
For one, the loan has a limited grace period which may not be enough for the new business branch to stabilize. And the other thing is that loan has an interest rate that eats into your profits. Besides, your business may not qualify for enough money to open new branches simultaneously.
That’s why to finance expansion; you should consider franchising your business. The franchisees will raise up the capital of opening up the branches. Your only work as the franchisor is to market your business as the best franchise.
Search for the top online platforms where you’ll post your franchise for sale. You’re looking for websites with high traffic to attract many different franchisees. That’s why you should carefully review these websites to determine the best one to use.
Your endgame is to find many franchisees, thereby raising business expansion capital quickly. The amazing thing is that you, as the franchisor, don’t pay any upfront fees, yet you gain.
Opportunity to Earn Passive Income
If you observe successful businesses, you’ll note that they have multiple streams of income. These companies may seem like they’re in a certain industry, yet most of their income comes from an entirely different field. For example, you’d assume that a company selling products online biggest revenue source is profit, yet it earns most of its money through subscriptions.
To create these passive sources of income, you should consider franchising your business. On top of getting huge upfront fees and profit shares, you also have other means of earning money.
Here are some of the ways franchisors earn money:
One of the reasons franchises are successful is because they have uniform operations across all branches. The employees of a given franchise are trained to conduct themselves in a certain way. Besides, these employees are also instructed on how to interact well with customers and deliver top-class customer service.
So, when a new franchisee joins your chain, they’ll invest in employee training. As the franchisor, in return, you earn training fees, thereby creating a source of passive income. Understand that training isn’t only limited to new franchisees as you can offer it to existing franchisees.
The secret is to offer frequent training to earn money and provide reasons that enhance your franchise’s image. That’s why you should be willing to involve business experts when providing the training. You want to equip the franchisees with business skills that boost their odds of success.
The other way to earn passive income as a franchisor is through real estate. The idea is to invest in pieces of land all across the country. So, you’ll lease these plots of lands to individuals buying into your franchise chain.
That means that you receive a steady income stream from the franchisees. In addition, you’ll receive greater capital for expansion which you can use to acquire more plots of land. If you invest in real Estate right, it’ll become your biggest source of income.
As a smart business owner, you understand that having a single outlet limits your profit-earning potential. The problem is that financing the opening of new branches is costly, and you may not have the capital. Besides, even if you have the money, it’ll take years for you to recoup your investment.
That’s why you should look for an option why you undertake massive business growth without spending anything. The idea is to have outlets all over the country and some even in foreign countries earning you money. The easiest way to achieve this goal is by franchising your business.
On top of the franchisees paying an upfront fee, you’ll be sharing the profits they earn. That’s why you should learn more about techniques for determining royalties, such as the 25% rule. The idea is to get insights that help you estimate how much money you’ll earn from a given franchise.
To maximize your royalties earning, you should take time to train all your franchisees on growing sales. Besides, search for the best marketing channels to use to market your franchise. Understand the more sales the franchisees generate, the more money you earn.
Reduced Marketing Expenses
On the surface, it’s clear that big companies spend more money marketing than small companies. After all, these companies target a wider audience group than small enterprises. That’s why these businesses need to have a big marketing budget to reach out to these people.
However, when you take a deeper look, you’ll realize those big companies spend less money than smaller ones.
Here is how franchising your business will reduce marketing costs:
Cost Distribution across All Franchises
As a franchise, it’s obvious that you’ll spend more money on marketing than small businesses. After all, you need to get the word out there to increase sales and boost your revenues. Yet, when you divide the marketing costs will all franchises in your chain, it’s less than what most small businesses spend.
In addition, as a franchisor, you’ve access to limitless capital from the franchisees. So, it’s easy for you to finance various marketing campaigns and boost your returns. The secret is to research the best marketing channels to use which boost brand awareness.
Lower Cost per Sale
Smart business owners don’t think of marketing cost as an independent figure but relate it to sales. That means that they divide the marketing costs with the total sales for a given period. The idea is to find out the returns they get from every dollar they spend on marketing.
In many instances, franchises tend to get more sales per dollar spent on marketing than small businesses. The reason is that franchises have outlets in many different locations. So, even if one outlet makes a loss, it’s balanced off by another that generates huge profits.
Increased Brand Recognition
Most small businesses spend a huge portion of their marketing budget on creating brand awareness. Despite spending this money, they don’t get any immediate returns. By franchising your business, you’ll significantly reduce this cost.
Franchises tend to have a high brand recognition than small businesses. That means you won’t spend thousands of dollars educating people on what your business does as they already know you. So, you can direct these funds to other marketing activities that aim to increase the conversion rate.
People who buy your franchise will automatically become free marketers for the business. These entrepreneurs will promote the franchise to their friends and relatives. Some of them will even post adverts on social media to draw traffic to their outlets.
Although these people undertake these marketing activities to pump their sales, it benefits the entire franchise chain.
Ease Accessing Financing
Financial institutions and investors will see your small business as a high-risk, low-return investment. That’s why despite offering amazing products and having a great business plan, they’re still reluctant to finance you. It’s therefore challenging for you to raise the money you need for business growth.
You may feel like your only option is depending on governmental loans and grants to get these funds. You’ll spend weeks researching the SBA loan program only to realize later you’re not eligible. The other problem with these loans is that thousands of entrepreneurs apply, so the competition is high.
That’s why to increase business financing; you should consider a third option of franchising your business. For one, you’ll get immediate financing through the upfront fees the franchisees pay. And you’ll also easily qualify for loans from banks and other financial institutions.
Finally, as a franchise, it’s easy to attract investors from all around the globe to fund different new projects. Understand that every serious investor will be after a piece of your business. So, it’s up to you to come up with amazing business growth ideas as it’s easy to get funding.
Lower Failure Rate
Business gurus have a huge argument on the success rate of franchises, and it doesn’t look like they’ll agree soon. Yet, all business gurus agree that franchises have better odds of success than independent businesses. Understand that the lower failure rate doesn’t only favor the franchisee but also the franchisor.
It’s a no-brainer that when your business goes under, you lose all your investment. If you had borrowed money to start the business, you might be forced to file for bankruptcy. Besides, on top of losing money, this may kill your entrepreneurial spirit and make you prefer being employed.
So, by franchising your business, you lower the failure rate and safeguard your investment. That’s why you should strive to find resources to know what it takes to create a successful franchise.
Here are some of the things you can do to increase your franchises odds of success and safeguard your investment:
Invest in Market Research
To protect your investment as the franchisor, you must undertake research to learn people’s wants and needs. You want to get information that helps you formulate sound business strategies. The strategies will focus on attracting more entrepreneurs to buy into your franchise.
Also, you need to formulate plans to how to boost market penetration and increase sales. All these things aim to ensure that your franchise chain is highly profitable.
Charge Affordable Upfront Fees
To increase your returns when you franchise your business, it’s logical you need to charge high upfront fees. However, avoid charging too high fees as this will reduce the number of people interested in your franchise chain. Understand that many other franchise chains are competing for the same investors as you.
That’s why you should carry out research to help you know how to price your franchise chain fairly. You want to set a competitive price that makes it easy to attract many different investors.
Develop Strict Policies for Franchisees to Follow
One of the biggest drawbacks of franchises is difficulty managing reputation. If one franchise store does a negative thing, it damages the reputation of the entire chain. That’s why when franchising your business; you must develop strict policies for franchisees to follow.
These are rules that protect the image of your franchise chain, thereby creating a positive image. These things ensure your franchise chain not only survives but thrives.
Increase the Odds of Success by Franchising Your Business
Franchising your business gives you access to huge expansion capital, thereby facilitating business growth. Besides, as a franchisor, you have numerous opportunities for generating passive income. That’s why you should look for resources that guide you on franchising your business the right way.
You want to know the best platforms to use when searching for franchisees. Also, you’re seeking insights on how to manage the franchise to boost the odds of success.
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