Why Franchise a Business?

There are many great reasons to consider franchising a business. Here are just a few.

Why Franchise?

It might start with “What is a Franchise? If you are unlcear visit our definition of franchising page. Franchisors provide their franchisees with a proven business system, training and support thus increasing their chances for success but the benefits of franchising a business can be just as compelling for the right business.

Higher Unit Productivity

On average franchisees tend to produce nearly 30% more in revenue than most corporate managed remote locations. This means that compared to scaling your business with additional corporate locations your franchised units are likely to produce more in revenue.

Reduced Capital

While of course there are significant costs to franchising any business, these costs are easily offset compared to the costs of opening remote corporate owned locations. This is certainly true for any business who plans to have more than 3-4 locations and most franchisors have higher goals than this. You should! Since franchisees use their own capital to open their franchised location or unit the franchisor has very little, if any, investment in the opening of additional locations.

Limited Role in Day-to-Day Operations

Since your franchisees will be running their franchised unit, the franchisors involvement in day to day operations is limited allowing the franchise to focus more on growth and systems to increase system wide revenues.

Reduced Liability

Franchisees assume the liabilities of things like their leases, financing, employees, etc. the franchisor’s liability is greatly reduced.

Recurring Royalty Revenue

Most franchisors’ primary profit center becomes the royalty revenues generated by their franchisees. With rare exception franchisees pay a small portion of their gross revenues to the franchisor in the form of a royalty for the life of the franchise agreement. Royalties are generally collected weekly or monthly.

Reduced System-Wide Costs

Often franchisees contribute a portion of revenues or additional fee for things like advertising and technology. This allows the franchisor to not only access but offer its franchisees a superior service for a fraction of the cost.

Growth of the Brand

A brand is a very powerful thing and with all franchisees collectively building the same brand everyone benefits, including the franchisor.

Exit Strategy

While most small-medium sized businesses are typically sold for around 2X – 2.5X gross annual revenues, currently franchisors are being valued at 8X-14X gross revenues. Let’s look at an example…

For easy math let’s say you have 50 franchisees each generating an average of $1mil in total revenues and pay a 7% royalty. That is an annual royalty revenue of $3.5mil meaning that commonly investors will value the franchisor at $30 million +.

There are many other compelling reasons to consider franchising a business but these are just some of the more common ones. Request your franchise feasibility study today and let’s see if we can help you become the next big thing in franchising.

Request Your Feasibility Study

Contact us today to request your franchise feasibility study. The cost for a professional feasibility study is $1,495.