Why Do Businesses Franchise?

There are an infinite number of reasons to franchise a business; however, people’s motivations for franchising can fit four main categories:

  • Vision
  • Skill
  • Money
  • Ego

Vision encompasses those people who want to grow their business quick, yet lack the resources to do it with company-owned locations. They want to enter new markets and understand that the cost and energy to do so themselves may be too high for them. Franchising thus affords these people the answer, as prospective franchisees invest their own capital in the new locations within their markets.

The skill reason category is broad. People seeking to expand their businesses often do not want to deal with more employees, so franchising is a perfect answer since the employees of the new location work for the franchisee. These people are often also seeking more motivated workers than employees tend to be. Franchisees have more to loose and thus have a vested interest in the business. On the other hand, people seeking to expand their businesses may actually lack the managerial skills that a company with multiple locations requires. Franchising calls for a totally different set of managerial skills. Since franchisees are not employees, franchising requires stronger human relations skills than managerial ones.

Money is always an element in the decision whether or not to franchise. Although franchising is expensive to set up, it saves the cost of opening locations as franchisees use their own capital for this purpose. The economic rewards do not have the same potential of an expansion via company-owned locations. However, franchising does not have the risks nor does it require the time and effort that come with the former method of growth.  Franchising creates an annuity. It can also create wealth; and, it can serve as a profitable exit strategy for small business owners. Franchising does not dilute the owners’ equity nor does it necessarily have to create debt.

Finally, there is ego. Yes, ego plays a big part in the decision to franchise. People who choose to franchise their business usually have the desire to see their creation appear all over the place. The yearning to be recognized for one’s accomplishments as a business leader and the longing to make an impact on many lives are also strong motivations to franchise a business.

What are (or were) your reasons to consider franchising?