Many business owners strive to be the next McDonalds; a world-recognized brand with global appeal. There are many ways to accomplish that goal but the one with the highest success is the franchise model.
There are four key benefits to the franchise model, discussed further herein.
Expansion with Minimized Risk
Normally, expansion of an existing business requires infusion of capital by a company’s owners, taking on debt, or the sale of equity; each coming with significant risk to the company and possibly the shareholders personally (in the case of personal guarantee on a loan or capital contribution). The franchise model minimizes this exposure by expanding through the licensing of its brand and business model to franchisees. The franchisees are separate corporate entities (or individuals) who operate their business using the company’s brand and are typically responsible for the liabilities of that business (i.e employee salaries, commercial leases, etc). The company under the franchise model then gets to expand its brand’s reach without any investment by it or its owners and without taking on the risk of the liabilities of the franchisees such as the commercial lease.
Ongoing Revenue Streams
To purchase a franchise, the franchisee pays an initial purchase fee and royalty fees. Royalty fees typically take the form of a percentage of gross sales, paid on a regular monthly basis. Depending on how successful the franchisee may be, these royalty fees can quickly generate a substantial revenue stream for the franchisor.
Management with Vested Interests
When a business expands in a traditional manner by setting up new additional locations, that new business will typically have its own store manager or branch manager. As a general matter, locations managed by these managers will not have the same level of care as locations managed by franchisees, because franchisees, as owners of the franchised location, have a vested interest in seeing the business thrive.
Brand Exposure and Development
This is a big one. Even though a franchisee is a “separate” business from the franchisor’s original business, it is still an extension of the original business in an important way. The franchise business carries with it all the same logos, products, operations and other materials from the original business. Consequently, the franchisor, and every franchisee, benefits immensely from the brand development, expansion and exposure which comes along with franchising.
Contact Trembly Law for More Information
If you’d like to learn more, contact the Trembly Law Firm today by calling 786-751-6796 and speak to one of our franchise business attorneys.