The obvious answer is they want to expand their business. Let’s take a closer look at the advantages of franchise expansion versus chain expansion. Franchise expansion provides a competitive advantage because entrepreneurs implement unit expansion not company paid managers.
Since the entrepreneurs (unit franchise owners) have their own money at stake and therefore bear the risk, they will try harder to succeed. We all know that having skin in the game makes you more committed to the outcome. Franchise expansion also provides a financing vehicle for the franchise company by leveraging the franchisees ability to raise capital through their own resources including the Small Business Administration (SBA), family partnerships, savings and the like, sources that are not available directly to the franchisor. Another advantage of franchise expansion is that it lowers the risk. Franchisees provide the start up capital, not the franchisor and the franchisees pay a royalty based on gross sales not profits.
Don’t be fooled into thinking that it’s all glory and no work for the franchisor. Certainly not the case. Franchisors are dependent on the flow of royalty fees to support their efforts and grow the network. It’s in everyone’s best interests to make money and be successful. Most quality franchise system owners are deeply committed to making positive changes in the lives of their franchisees. The job of the candidate is to weed out the good from the bad. Finding out whether a company is a good one or just opportunistic can be challenging. It pays dividends to use the services of a business consultant to help guide you through this investigation.
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