What Is Franchising?
Franchising in this scenario, simply refers to a joint venture between a franchisor and a franchisee. What this means is that the franchisor is the original business which sells the right to use its name and idea to a franchisee, who may in turn, sell the franchisor’s goods or services under an existing business model and trademark.
In practical terms, if a caterer seeks to open a restaurant but does not want to be hassled with the whole process associated with starting a restaurant, it can purchase a license from a restaurant such as Chicken Republic to enable it commence its business under the name Chicken Republic. What the above does, is that prevents the startup restaurant from the stress of trying to convince investors of its reputation, attract customers or even help sustain the business. Notwithstanding, these are just a few benefits of engaging in franchising.
Why Franchising Seems To Be The Best Approach For Entrepreneurship?
Recall that I had earlier highlighted some benefits of franchising, but it really doesn’t end there, because I am sure that in choosing an investment or sustainability option for a business, the business owner/ entrepreneur, must have measured the benefits and the risks, taken into consideration which outweighs the other, the nature of the business etcetera.
In 2019, a research was conducted as to why start-up entrepreneurs seemed to think franchising was the way to go in building a sustainable business. The research showed that entrepreneurs all over the world expressed a consensus on the following points:
- Capital Growth:
Lack of access to funding is considered the most prevalent impediment to expansion for today’s small enterprises. Entrepreneurs often found that their expansion aspirations outstripped their ability to fund them even before the economic crunch of 2008-2009 and the “new normal” that followed.
As a type of alternative capital acquisition, most entrepreneurs choose franchising because it allows them to expand without the danger of debt or the expense of equity. First, because the franchisee supplies all of the capital required to build and operate a unit, it lets businesses develop by leveraging other people’s resources. The franchisor can expand largely debt-free by using other people’s money.
- Staffing Leverage
Franchising allows franchisors to run their businesses more efficiently with a smaller staff. Franchisors can use these initiatives to cut total headcount by having franchisees take on many of the activities.
- Increased Profitability
The above-mentioned staffing leverage enables franchise firms to operate profitably. Because franchisors can rely on their franchisees to handle site selection, lease negotiations, local marketing, hiring, training, accounting, payroll, and other human resources functions, franchisors are able to focus on their core business.
Despite the above benefits, one would wonder why every start-up entrepreneur does not just commence business while adopting the option of a franchise firsthand. Well, this is because the process of selecting the right franchise can be quite complex, as a lot of processes go into it, and most entrepreneurs possess little or no knowledge of what might be the best approach for their businesses. This leads us to the type of franchising options available to startup businesses.