The economic viability of investing in a franchise

The popularity of franchising is constantly increasing.

It seems that the popularity of franchising is constantly increasing and delving into the economic viability of investing in a franchise, when compared to that of investing in a new business, it is not very difficult to understand why.

“The most significant advantage of investing in a franchise is that right from the start, the investor is provided with everything they need for a turnkey operation - from recruitment all the way through to the actual product,” reveals Marketing Director for Traditional Brands, Nicolas De Sousa. “It makes a great deal of sense for new business owners because along with the turnkey operation comes access to considerable expertise, support and understanding.”

It’s no secret that successful businesses are based on a sound understanding of the consumer and as De Sousa points out, a well-established franchise already possesses vital consumer insights which it in turn is able to pass on to new investors.

One of the greatest concerns for a new business owner is lack of support. “There are a great number of business facets that dictate how successful a business is, these include sales and marketing, health and safety, legal requirements and finance, to name a few,” says De Sousa. “Most business owners would have to outsource these areas of expertise at a costly rate, if they are not able to fulfil these functions in-house. Franchise owners, however, are able to access that support from the franchisor.”
In addition to this, new franchise owners have the benefit of lower operating costs. “Everything from the cost of the product to the cost of the business’ insurance is negotiated by the franchisor,” De Sousa adds. From a logistical point of view, they will have access to the systems and supplies of a well-established brand, providing them with far greater security. Not to mention the benefits of gaining national exposure. “This goes as far as landlords granting pre-approval based purely on the brand name invested in.”

Becoming a new franchisee also comes with significant challenges of its own. The franchisors (aka “head office”) operate through uniformity: this is one of the cornerstones of a successful franchise brand and this provides vital functionality. This standardisation is applied to areas such as menu and store design, location choices, franchise fees, as well as a variety of application processes.

As such, it is important to be on board with the brand’s overall philosophy and concept, to feel comfortable operating within their structures and in agreement with their systems. “Don’t just invest in any brand, your success as a franchise owner will depend on you choosing an organisation with a business model and vision that you believe in,” De Sousa explains. However, while start-ups allow more freedom they also pose a much higher risk. “Franchise organisations have the benefit of an already established brand and business operating model, which is a far more secure option in today’s economic climate.”

Investing in a reputable franchise will give you a superior platform for an attractive return on your investment, but at the same time will require a considerable amount of research and stringent finance application processes. De Sousa believes that business owners who are confident in their ability to manage these processes have great potential to succeed.

Source: Moneyweb