Franchising Series: Advantages of Owning a Franchise

by Brad Mix | November 1, 2022

When determining what type of small business to start, franchising can be a very appealing market entry strategy. In part one of this series, we’ll discuss the advantages of Becoming a franchise owner over starting your own business from scratch.

Advantages of Franchises

Proven Business Model: When you buy a franchise, you are buying a turnkey business opportunity with the advantage of a proven business model. Most franchises started as a successful small business that expanded by opening additional locations prior to becoming a franchise. An interesting book to read is, “McDonald’s: The Business behind the Golden Arches,” which tells the story of how McDonald’s grew from a single hamburger joint in San Bernardino, California into the largest restaurant chain worldwide.

Training & Ongoing Technical Support: The franchisor provides new franchise owners with initial training teaching them business operations, financial management, and marketing.

After a new franchisee is up and running, the franchisor will provide ongoing training and technical support to ensure continued business growth and success. Franchisers have field support representatives that serve as coach/business advisor to the franchisees.

Brand Recognition: Successful franchises have name recognition and easily identifiable logos like the McDonald’s golden arches. Customers know exactly what to expect when they buy the franchise’s products or services. For example, if you are driving cross country in a rural area and need a place to stay for the night, you know exactly what to expect when staying at a Motel 6 versus an independent motel like Davie’s Hideaway.

Exclusive Territory: With some franchises, primarily brick and mortar type businesses, a franchisee is granted an exclusive territory where no other franchise stores can be opened by another franchisee. Other franchises do not provide exclusive territories. For example, Subway franchise has recently been criticized for opening new stores too close to existing Subway stores without adequate separation resulting in the new store cannibalizing the sales of the existing store

Some service type franchises do not offer an exclusive territory therefore when evaluating a service franchise, one needs to determine how many franchises are or will be granted in your geographical market.

Lower failure rate: Franchises tend to have a lower failure rate compared to individuals starting a business on their own. With franchising, you are buying a proven business model with brand recognition. In addition, franchisees receive on-going support from the franchisor to help ensure their success. Many banks active in SBA lending to franchises use the Coleman’s 2022 SBA Franchise 7(a) & 504 Loan Performance Report that benchmarks SBA loan performance data including loan default rates by franchise and NAICS codes.

Wide Range of Industries: There are more than 4,000 franchise brands covering a wide range of industries including automotive, car rental, e-commerce, business services, convenience stores, insurance, realtor, home services, food and restaurants, education including early childhood education, fitness and exercise, mailing and shipping, photography, moving, beauty and health, hotel, cleaning, entertainment, and senior care to name a few.

In part two of this series, we’ll cover the flipside of the coin – the disadvantages of becoming a franchise owner.

Part Two

Part Three