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Why Are Business Franchise Models So Effective?

Jun 27, 2008
Business franchise models are amongst one of the most successful business structures in use today, spanning the entire globe and a range of industries. From large multinational franchising outfits through to the smallest franchisor, business franchise opportunities are a great way of generating profits from running a business without taking the same risks usually associated with new business startup. Benefiting from a tried and tested business model, franchising agreements are usually better regarded by banks and lending institutions and present less of a risk to the entrepreneur looking to start-up in business. But why exactly are franchises such a popular way of doing business?

Business franchising agreements are so effective because they generate value for both parties. The business owner can benefit from his franchising operation expanding nationwide and even globally, while the franchisee will benefit from the previous good reputation of the franchise and its previously established outlets. The business franchising agreement also allows the franchisor to earn a recurring income from each of his franchisees, while the franchisee will be able to benefit from a degree of freedom in the way they run their franchising business. It is this two-way street that makes business franchising such a popular arrangement and business form around the world.

For the franchisee, a business franchising agreement can be worth its weight in gold. Business franchising provides an excellent way to get started in business without incorporating the same risks as are usually inherent in business start-up. The previous marketing and word of mouth business of the franchise will immediately be passed over to you, providing value that you couldn't otherwise buy for your business. While you don't get to engage in the branding process and advertising will largely (but not always) be centralized, you do get to reap the real rewards of running a successful business, in the form of recurring annual profits.

For the franchisor, business franchising allows almost instant expansion over a given geographical area, and is a great way of delivering additional income to the business, through royalties and up from business franchising payments. For the small business owner keen to expand, the franchising arrangement may be a particularly profitable and successful way forward, providing instant growth and increasing monthly revenues. If you don't have the capital to expand yourself, franchising may be a good route towards achieving your growth objectives.

Business franchising clearly poses benefits and drawbacks over starting up a business on your own accord, and those that choose business franchising will usually be well aware of the arguments on either side. Furthermore, with the support of the banks and the expert training and experience passed down from other franchisees and the franchisor, the business franchising model is a popular one across a number of different industries - from the services sector to the retail sector. But one thing more than any other makes business franchising agreements so popular and effective - their ability to generate strong profits and build into substantial businesses off the back of previous goodwill and a strong surrounding infrastructure.
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