According to a 2020 report by International Franchise Association, franchise market in the United States would grow by 2.8% adding over 2 lacs new job openings for a total of 8.67 million employees. As the franchise business expands consistently, Covid-19 has altered the prediction somewhat.
Regardless of the health crisis, many franchise brands are thriving and growing, making the franchise business even more important and beneficial in the upcoming years.
Let’s look at some of the important points that make Franchise business valuable in the United States in 2021.
Why is Franchising Important?
Here is a list of important points that make franchising business significant in the near future.
Creates Employment & Revenue
According to a survey, franchising business contributed over 1.3 trillion dollars in revenue in one year out of the total 7.7 trillion generated by more than 250 industries included in the census. It included fast food restaurants, gas stations, convenience stores, full-service restaurants and other franchise models contributing towards more than 120 billion dollars in payroll for the employees.
With this data, it showed more than 7 million workers currently working in the franchise business and continually expanding with more job openings every day. Since franchise has a stable and successful business model with consistent sales of products and services, it easily attracts new customers.
The franchising business can be much safer and less risky to work within unless the franchisor opts for a different structure, wherein, the franchisor has all the responsibility for the investment and needs to pay for any build-out or inventory, hiring new employees and taking responsibility over the working capital.
The franchisee executes leases for equipment and the physical location, creating liability over whatever happens within the unit itself, making you safe and risk-free from liability for-
- Employee litigation including sexual harassment, age discrimination, EEOC
- Consumer litigation including misbehavior with customers, spilling drink over their clothes
- Accidents including employer’s comp, slip and fall, equipment failure
It is always better to create a new legal entity to act as the franchisor which limits your exposure and reduces the cost of opening up a new store reducing the risk greatly.
It helps the franchisors to grow thousands of units with limited investment, without spending any of their own capital on unit expansion, reducing their risk substantially.
Every entrepreneur has faced the challenges in doing something better and innovating than their competition to stay ahead in the franchising game. The problem begins with opening of single units. It usually takes a long time. Getting into the franchise business ensures the franchisor to capture a market leadership position before the competitors as the franchisee performs most of the tasks.
Franchising business model allows the franchisor to have a financial leverage while leveraging human resources, which in turn, allows companies to compete with much larger franchise competitors in the market, speeding up their growth and expanding their business.
Increased Profits & Valuation
With easy staffing and supervision process, franchise business can run in a profitable manner easily. Franchisors depend on the franchisees for important decisions such as lease negotiation, local marketing, site selection, hiring, training, payroll, and other functions, making the organization leaner and the net result much more profitable.
According to a study based on the last decade, franchising puts up an average of 40 to 46 percent to the bottom line, even though it is difficult to quantify this contention. It further increases the valuation of the business than other competitors. So, when you feel it is the right time to sell off the business, the fact that you managed to run your franchise in a profitable manner proves as an advantage at the time of selling, in turn, increasing the valuation of your business.
Builds Brand Name
Many franchises turn into a daily household name, which is the goal of every franchisor. In order to build a reputed and recognizable brand name, the franchisors must work with the franchisees towards fulfilling the organization goals and the brand promises in order to see results.
The goal of creating a brand name can be completed by providing sufficient employee training along with operating policies and procedures helping the franchise serve its customers. Also, the marketing and promotional efforts of the franchise helps in creating a buzz around the brand and helps attract new customers building the brand name.
Franchise brands are known for its consistency and quality resulting in both, national and local confidence in the products and services they provide.
Beneficial for Franchisees
As the concept of franchising is continuously developing over time, it requires a lot of time, resources and proper organization of business and accounting information. This information should help convince the buyers that the infrastructure will help them succeed.
The documents of the business explain several aspects such as managing the business, and providing information on training and hiring of staff, order supplies, equipment operation and customer service. Franchisees also get an experience of handling the market through customer service, marketing of the products and services including opening and promotional efforts and events and helps them for future, if they ever think of becoming franchisors themselves.
Creates Support System of Franchisees
If a franchisor or franchisee is facing a financial downturn or is ever stuck in a crisis, they are never alone. Being a part of franchise team, makes them feel they can rely upon their team in case of any problems. They can share their best practices and business techniques in order to face unexpected economic or societal change.
Franchisees do not feel alone in the corporate system of business and are fortunately not left alone to figure out how to handle situations on a trial-and-error basis. Rather, the structure of the business and the franchise support system makes it less risky and a powerful network of successful entrepreneurship.
With the ups and downs faced by the franchise business during Covid-19, there is still a high probability of franchising business model to pursue great profits and benefits during these tough times.
Starting an online franchise business to opening up a new store, there is a lot of significance and importance of franchising in the entrepreneurial world!