If you’re looking to start a business, one of the considerations and questions you need to ask yourself is whether you want to start an independent business or a franchise. There are many advantages of franchising, as well as disadvantages—for both franchisees and franchisors.

Franchising is a kind of business that provides the opportunity of business to everyone. It provides something for everyone. For entrepreneurs, franchising business is the most beneficial business opportunity. It provides an opportunity to franchisors and franchisees at international levels in different sectors. Franchisors can expand the outreach of their business by delegating their original business to aspire franchisees.

A franchise system gives an opportunity to do the proper distribution of services with the help of multiple franchisees. With this system, the franchisor can expand the business faster across many countries with help of local franchisees in different locations and many people can be served in different locations.

• What is a Franchise?
• Why Franchising is a Smart Business?
• Why Franchise Business is More Successful?
• What are the Advantages of Franchises?
• Why is Franchising a Good Strategy?
• How to Open a Franchise
• What are the Disadvantages of Franchising
• Why is Franchising Important in Today’s Economy?
• Why Franchising is So Popular
• What is the Future of Franchising?
• How Successful are Franchises?

What is a Franchise?

A franchise is a business model where a business owner provides products or services under the branding and rules a parent corporation sets. The parent corporation assists its franchisees with marketing, inventory and support. When opening a franchise, the franchisee pays the franchisor royalties and usually submits an initial franchise fee to do business under the brand’s name. 

Essentially, franchises combine working for someone else and working for yourself in two categories: 

• Product and trade name franchising: Product and trade name franchising is when you buy or license the right to use someone’s product or trademark.
• Business format franchising: Business format franchising is more complex because the franchisor provides franchisees with a full range of services and support. The franchisor lays out specific rules and conditions, and the franchisee agrees to abide by them.  

Business franchising isn’t for everyone; many would-be entrepreneurs prefer to start a business from scratch. Both franchising and starting a new business have benefits and disadvantages, and being a business owner in any capacity is risky. 

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Here’s a look at how franchising differs from starting a new business:

• Franchises have less freedom. Starting your own business gives you the freedom to make every decision, small and large. This freedom allows you to create your vision, but it can be overwhelming. With a franchise business, you have less freedom but more support. You sign an agreement outlining all conditions. You receive the tools, support and structure to run the business as laid out by the franchisor. Franchisees usually lease all necessary equipment.
• Franchises enjoy instant brand awareness. When you start a new business, you’re tasked with building a brand according to your vision. Brand building can be challenging but rewarding. When you open a franchise, you enjoy instant brand awareness. Your brand is established; however, you don’t have the freedom to tweak it to your liking.
• Franchising startup costs can be high. Starting a new business and opening a franchise both require significant monetary investments. Business startup costs can range from a few thousand to tens of thousands of dollars. Franchise funding can be pricey; you’ll likely need to secure a loan or line of credit to cover franchising fees and real estate costs. However, you may be able to use your franchisor’s investor relationships to secure funding.
• Franchise business operations are standardized. Day-to-day operations are different for franchises and original small businesses. Franchises are meant to be the same regardless of where you go; think of the Subway or Chipotle assembly-line meal-creation format. A small business doesn’t have to follow any specific format and can operate how the owner wishes.Franchises have a large pool of buyers. If you want to sell your independent small business, you can enjoy significant profits if you find the right buyers. Selling a franchise means you’ll have a larger customer pool that wants to benefit from the brand name. If a franchise owner can’t find a buyer, the franchisor may be willing to buy back the operation. However, an independent small business owner may be out of luck if they can’t find a buyer.

Why Franchising is a Smart Business?

Franchises offer many benefits to owners, including the following: 

• Franchises have access to proper training. Opening a franchise means you get a set of rules to follow and a parent company with resources. With provided guidelines, franchisors can give franchisees proper training in running the business to ensure the best chances of success. For example, McDonald’s famously has its Hamburger University, a training program to help people learn the McDonald’s way and maintain the company’s methods of running things.
• Franchises receive marketing help. Parent companies assist franchisees with marketing strategies and materials. In a world of social media, SEO and everything in between, running a business without marketing stress can be a significant benefit. Typically, franchisees pay a monthly fee to the parent company’s advertising budget, which is run by a team of experts.
• Franchises have the support of a big company. The parent company’s support goes beyond training and marketing. The franchisor may provide equipment and other resources to get you started and help you throughout your franchise tenure. If new features, products or equipment is needed to advance your business, your franchisor typically has the means to help. Other support resources include call centers, advice and support channels, and conferences.
• Franchise funding can be easier. A franchise’s built-in market and established presence can make lenders more comfortable because they’re providing money for a business with a proven track record.
• Franchises enjoy improved buying power. Your franchisor will likely be able to negotiate better rates for supplies and materials than you’d receive as an independent business owner. 
• Franchises give you a faster ROI. With any business, return on investment (ROI) is crucial in measuring business success and growth. Franchise owners can open their doors more quickly and often have a built-in customer base. You’ll enjoy a faster ROI as customers flock to your store, knowing what products and level of quality to expect. 
• Franchises can navigate legalities more easily. Parent companies can help franchises work with state and federal regulations to comply with laws and handle legal proceedings. 

Why Franchise Business is More Successful?

Any business owner must predict the future and prepare for it. Franchises have succeeded for several decades due to the strategies they have put in place. Political instabilities, fluctuations in the economy and other forms of erratic market behavior call for a sober analysis.

Below are some of the reasons why franchises have experienced so much success over the years.

Proper Business Model

A proper model for the franchise is the structural secret to its success. The model simply describes how the chain of command and operation works. It’s mostly fostered in the relationship between the parent company and the franchises.

The business model that a company adapts depends on the intelligence and type of franchise that it practices. So, the models of beverage companies such as Pepsi and Coca-Cola are different from KFC or McDonald’s. The fast-food franchises do not necessarily compete against each other directly: instead, KFC sells fried chicken and McDonald’s sells burgers.

Location and penetration

Franchises have a reputation for occupying prime locations that attract lots of customers. The franchisees research the best places to open the store and the franchisor offers advice on location selection. This allows the business to grow into a sustainable, profitable operation.

Also, franchises can penetrate through different business ecosystems. The idea is to find a large territory for the franchise to grow and open new stores. The ability to adapt to different geographical locations keeps franchises in business.

Consistency

Have you ever realized that Coca-Cola will taste the same in Tiffin, OH and Mumbai, India? And that a KFC chicken wing is still the same in Cleveland as it is in Nairobi? The consistency of taste and style is one of the factors that keep these franchises in business!

Franchises set up their stores to operate the same way and serve similar products all over the world. The stores have the same trademark, logo and decor. In the case of restaurants, the layout and staff uniform are consistent.

Uniformity in the quality of products and services offered at local franchises helps them stay relevant to their loyal customers across borders. The aficionados of these products can get their favorite taste anywhere in the world creating a comfortable and predictable brand experience.

Innovation

Staying afloat for decades means that a business must adapt to changes in the environment and technology. Innovations have to be made every step of the way to strike a balance between delivering the same tried and true offerings while always testing new products and keeping the winners in the mix.

To stay in the public eye overseas, some franchises have brought in local flavor to their menus. While this seems to conflict with the brand’s consistency, it adds to the selection. For example, in the case of fast-food franchises, restaurants serve the country’s favorite dishes alongside their trademark dishes. The menu, therefore, welcomes innovations to add to the dishes offered in these restaurants.

Resilience

One of the reasons why McDonald’s and Subway have stood the test of time is due to their resiliency. Although it seems like the two franchises have always had an upward trajectory, they had to persevere challenges over time.

For example, after the press questioned the health value of their products and ingredients, McDonald’s formed the GAC (the Global Advisory Council). Created in 2004, the assembly of international experts now provides independent guidance on the nutritional value of the company’s products.

Training and support

A franchise has to have franchisees who understand the values and principles of the parent company. It is in the best interest of the franchisor to train and support the franchisees in order to grow. The fact that the established franchise trains the upcoming startups gives it an edge over the conventional businesses which only learn through trial and error.

Basically, new investors have to employ a lot of methods to learn about managing and operating their businesses. Other business people have to hire expensive coaches or enroll in mentor-ship programs offered by successful people.

But, in the case of franchises, the new franchisee gets mandatory training from the franchise team to ensure they understand the values, principles and operating models. Again, the parent company offers to train the staff members about producing the goods or services. Such support sets up the franchise for success.

What are the Advantages of Franchises?

The franchisee is the third-party buyer who purchases the brand rights from the franchisor (the owner of the brand). The franchisee pays an initial franchise fee to the franchisor for the rights to use their brand in addition to ongoing franchise fees for marketing, royalties, and more.

There are several advantages of franchising for the franchisee, including:

1. Business assistance

One of the benefits of franchising for the franchisee is the business assistance they receive from the franchisor.

Depending on the terms of the franchise agreement and the structure of the business, the franchisee might receive essentially a turnkey business operation. They may be provided with the brand, the equipment, supplies, and the advertising plan—essentially everything they need to operate the business.

Other franchises may not provide everything, but all franchises provide the knowledge and wisdom of the franchisor. Whether that knowledge is stored in a searchable, digital knowledge base or is a phone number to reach the franchisor directly, the franchisee has access to a deep reservoir of business assistance to guide them through the process of owning and operating a business. This knowledge can be essential to running a successful business and makes it much easier than starting a business from scratch.

2. Brand recognition

A big benefit that franchisees receive when opening a franchise is brand recognition. If you start a business from scratch, you would have to build your brand and customer base from the ground up, which would take time.

Franchises, on the other hand, are already well-known businesses with established customer bases built in. So when you open a franchise with this recognizable branding, people will automatically know what your business is, what you provide, and what they can expect.

3. Lower failure rate

In general, franchises have a lower failure rate than solo businesses. When a franchisee buys into a franchise, they’re joining a successful brand, as well as a network that will offer them support and advice, making it less likely they’ll go out of business.

As well, franchises have already proven their business concept, so you have reassurance that the products or services you’ll be offering are in demand.

4. Buying power

Another benefit of franchising is the sheer size of the network. If you’re operating a standalone business and need to order products or supplies to make your products, you’re paying more money per item because your order is relatively small.

However, a network of franchises has the opportunity to purchase goods at a deep discount by buying in bulk. The parent company can use the size of the network to negotiate deals that every franchisee benefits from. A lower cost of goods lowers the overall operation costs of the franchise.

5. Profits

In general, franchises see higher profits than independently established businesses. Most franchises have recognizable brands that bring customers in droves. This popularity results in higher profits. Even franchises that require a high initial investment for the franchise fee see high return on investment.

6. Lower risk

Starting a business is risky. This is true whether a business owner is opening an independent business or purchasing a franchise. That being said, the risk is lower when opening a franchise.

One of the reasons franchise owners face lower risk than independent business owners is the franchise network. Most franchises are owned by established corporations that have tested and proven the business model of the franchise in multiple markets.

This lower risk may also make it easier to access loans, including the best SBA franchise loans, to help you launch your business.

7. Built-in customer base

One of the biggest struggles of any new business is finding customers. Franchises, on the other hand, come with instant brand recognition and a loyal customer base. Even if you’re opening the first branch of a franchise in a small town, the likelihood is that potential customers are already familiar with the brand from exposure to TV commercials or travel to other cities.

8. Be your own boss

One of the biggest benefits of owning a business is being your own boss. When starting a franchise business, you get to be your own boss with the added benefit of receiving support from the franchise’s knowledge base.

Owning a business is hard work, but when you’re your own boss, you get to create your own schedule, have autonomy over your career, and potentially work from home.

A franchise gives you the benefit of being your own boss without the risk of starting your own independent business.

The advantages and disadvantages of franchising don’t solely apply to the franchisee, of course. The franchisor should also weigh the pros and cons before deciding to enter into this business model. Let’s explore the benefits of franchising that the franchisor can enjoy.

1. Access to capital

One of the biggest barriers to expansion for small business is the money it costs to expand. And while there are several business loan options, they don’t always pan out. Franchising your business will take some time and money on your end, but it also has the potential to make you a lot of money in the form of franchise fees.

Expanding your business as a franchise allows you to expand with little debt. The business expands as capital becomes available from franchisees instead of taking on debt through loans. The franchisor also shares minimal risk with the franchisee because the franchisee puts their name on the deed for the physical location of the business and lowers the franchises overall liability.

2. Efficient growth

Opening the first unit of a business is costly and time consuming. Opening a second unit can be almost as difficult. When that burden is shared with another business owner, it makes the process more efficient and takes the onus off the initial business owner.

When trying to grow your small business, starting a franchise can make opening multiple locations a much simpler process.

3. Minimal employee supervision

One of the big stresses as a business owner is hiring and managing employees. As a franchisor, the only support that you have to provide to the franchisee is training and business knowledge. In general, the franchisor has no hand in the management, hiring, and firing of employees.

This minimal employee supervision allows the franchisor to focus on the growth of the business instead of day-to-day operations. Instead of worrying about whether an employee shows up for their shift or not, the franchisor is focused on the big picture for business success.

4. Increased brand awareness

One of the many benefits of franchising is increased brand awareness. The more locations the brand has, the more people who are aware of the brand. And the more these customers come to know and love the brand, the more profitable and successful the brand can be. This increased brand awareness of a multi-location franchise can be highly beneficial to the franchisor and their franchisees—a win-win.

5. Reduced risk 

One of the biggest benefits to the franchisor in a franchise agreement is the ability to expand without an increase in risk. Because the franchisee takes on the debt and liability of opening a unit under the name of the franchise, the franchisor gets all the benefit of an additional location without taking on the risk themselves.

Additionally, the franchisor is often further insulated because the franchise is incorporated as a new business entity, leaving the original business owned by the franchisor as a separate entity from the franchise. A franchise lawyer can help to set up the terms for this type of protection within the franchise agreement.

Why is Franchising a Good Strategy?

Franchising is a method of expansion for an established and successful business looking to grow a network. It can also help businesses to expand both nationally or internationally, strengthen the brand and reach of a company and act as a good method of securing its future, but only if it is done well.

The main three benefits of growing your business through franchising are money, time and people:

1) Money – franchising allows you to use other people’s money to grow your business whilst also having less involvement with the day-to-day operations.

2) Time – franchising provides a method for growing your business quickly, whether you plan to grow locally, nationally or internationally. You will continue to grow and expand as long as there are available regions and people want to purchase your products or services.

3) People – this is probably the most time consuming business support function that many business owners have to deal with. Franchising attracts highly motivated people who have a local expertise and generally requires less staff to operate.

There are other advantages of growing your business through franchising such as economies of scale from areas like pooled marketing and cost efficient bulk-ordering and cash flow advantages from initial fees or recurring annuity income from contracted customers.

In addition, there are operational advantages such as higher owner/operator motivation, the transfer of operational responsibility and risk, faster network growth and increased idea creation and sharing.

How to Open a Franchise

With an understanding of franchising’s benefits, here’s how to get started opening a franchise. 

1. Research franchises and costs to find the right fit.

Fully research franchise options and determine which companies will offer you the best return on investment and provide you with the best chance for a consistent income stream.

Financing is a significant factor when choosing a franchise. Franchising is essentially leasing a business, so you must ensure it’s a financially worthwhile venture. 

Consider the following factors when evaluating potential franchise investments: 

• Average franchise revenue 
• Starting capital
• Royalty fees
• Marketing fees
• Miscellaneous fees
• Rent costs
• Franchising fees

2. Evaluate your franchise’s potential.

After factoring in franchise costs and determining if the franchise would provide a good ROI, consider its potential. For example, what competitors are in your area? Do your target customers live nearby?

Ensure there are no other franchises of the parent business near your location. Although some franchises can support multiple locations, such as Dunkin’ or Starbucks, it’s crucial to ensure you’re not setting up a competitive location that could underperform.

3. Create a business plan for your franchise.

To ensure you’ll be granted a franchise and ultimately secure funding, creating a business plan is crucial. You’ll present your business plan to investors and others to share your goals and profitability expectations. 

4. Complete all necessary paperwork for your franchise.

To get the process going, the franchisee must prepare their paperwork and business arrangements. You’ll be asked to sign a franchise license agreement. Review and understand the agreement before signing it and committing to the franchise. 

You’ll also need to choose your legal structure, such as forming a limited liability corporation (LLC). Franchisors require different business entities based on their overall structure, so work with the parent company during this process. 

5. Choose a business space for your franchise.

Once you’ve established and solidified your business proceedings, it’s time to find a place for your business. Your franchisor may have requirements on necessary space, so consider your agreement’s conditions before securing a property lease.

When you choose your location, ensure you’re not too close to a fellow franchisee or company-owned building. 

6. Hire employees for your franchise. 

The next step is hiring employees. Your franchisor may assist you in the hiring process and offer training programs and resources. Whether it is an intranet system provided by the parent company or detailed job descriptions, the franchisor can help you with your search for employees. 

7. Plan your franchise’s opening day.

With everything in place, it’s time to plan your opening day. When it comes to services like marketing, consult with your franchisor and engage in social media marketing and local press outreach. For in-store activities, check to see what is allowed within your franchise agreement. If possible, try to create a memorable first impression with the community.

What are the Disadvantages of Franchising

While there are many advantages of franchising, it would be remiss to think there aren’t also disadvantages. Let us explain further.

1. Restricting regulations

While a franchise allows the franchisee to be their own boss, they’re not entirely in control of their business, nor can they make decisions without taking into account the opinion of the franchisor.

For most franchisees, the most frustrating disadvantage that they face is that they must follow the restrictions laid out in the franchise agreement. The franchisor can exert a degree of control over the majority of the franchise business and decisions made by the franchisee.

Depending on the franchise agreement, the franchisor can control any of these aspects of the business:

• Business location
• Hours of operation
• Holidays
• Pricing
• Signage
• Layout
• Decor
• Products
• Advertising and marketing
• Resale conditions

These restrictions are put into place to maintain uniformity between the different franchises and the overall brand, but they can also be frustrating and feel limiting for the franchisee.

2. Initial cost

While the initial investment of the franchise fee buys a lot of benefits for the franchisee, it can also be costly—especially if you’re joining a very well-known and profitable franchise. While this often translates to larger profits, coming up with this initial money can put a strain on any small business owner.

Even if you opt for a low-cost franchise, you’ll likely still have to front a few thousand dollars. While this can be seen as a disadvantage of franchises, it’s important to weigh the opportunity against the initial investment and find the right balance for your business. And keep in mind, there are also franchise financing options to help you come up with this initial cost.

3. Ongoing investment 

In addition to the initial investment you’ll have to provide to start your franchise, there are additional, ongoing costs that are unique to franchises. Within the franchise agreement, the ongoing costs of the franchise should be enumerated. These costs might include royalty fees, advertising costs, and a charge for training services.

You’ll want to keep these ongoing fees in mind when you’re deciding whether to start a franchise.

4. Potential for conflict

While one of the benefits of owning a franchise is the network of support you receive, it also has the potential for conflict. Any close business relationship, especially when there’s an imbalance of power, comes with a risk that the parties won’t get along.

While a franchise agreement states the expectations of both the franchisee and franchisor, the franchisee has minimal power to enforce the franchise agreement without a costly legal battle. Whether it’s lack of support or simply a clash of personalities, the closeness of the business relationship between franchisor and franchisee is rife for conflict. A franchisor should screen all potential franchisees before entering into business with them, and as the franchisor, you should also use this opportunity to get a feel for the franchisor’s personality and management style.

5. Lack of financial privacy

Another disadvantage of franchising is a lack of privacy. The franchise agreement will likely stipulate that the franchisor can oversee the entire financial ecosystem of the franchise. This lack of financial privacy can be seen by franchisee as a disadvantage of owning a franchise; however, it may be less of an issue if you welcome financial guidance.

While franchisors receive a lot of benefits from starting a franchise, there are also some disadvantages to consider.

1. Loss of complete brand control

When a business owner opens an independent business, they maintain complete control over their brand and every decision that happens within the business.

When a franchisor allows a franchisee to open a business under their brand, they’re giving away (actually, selling) some of the control over their small business branding. While the franchise agreement should contain strong stipulations and rules to guide the decisions made by the franchisee, your franchisees won’t be clones of you. They will think and act differently, and your brand could wind up suffering because of it.

2. Increased potential for legal disputes

Any time you enter into a close business agreement with other people, you open yourself to the risk of legal disputes. While a well-crafted and lawyer-approved franchise agreement should limit a lot of the possibilities for legal disputes between the franchisor and franchisees, these disputes are still possible.

Any legal disputes that must be resolved in mediation or through the court system can be costly in both time and money, which takes away from the success of the franchise.

3. Initial investment

While much conversation is devoted to the initial investment that a franchisee must make in the franchise, that ignores the initial cost that is taken on by the franchisor.

When a franchisor starts a franchise, there’s a startup cost to get the business in operation. A franchisor must make sure that the franchise agreement is written clearly and reviewed by a lawyer experienced in franchise law. You may also hire a franchise consultant for expertise during this process. Starting a franchise requires an initial investment of both time and money on the part of the franchisor.

4. Federal and state regulation

While not entirely a drawback, dealing with the federal regulations set down by the Federal Trade Commission for franchises can be a nuisance for franchisors. These regulations ensure that franchises are operated fairly, but it also requires time and effort from the franchisors to meet all of these regulations.

And while you don’t have to file your agreement with the federal government, you do have to file with some states—and you will have to make sure you’re compliant with different state’s laws. This can be a time-consuming process, but can be made easier with professional guidance.

Why is Franchising Important in Today’s Economy?

For 2022, franchises in the United States are projected to bring in $826.6 billion. Five years ago, in 2017, the U.S. franchise monetary output was $720.44 billion. The increase reflects how popular franchises remain with entrepreneurs and that American consumers are still steadily increasing their patronage of franchises.

On a more micro level, the amount each individual franchise can make varies widely.

However, it isn’t too difficult to gain more understanding on how a much a particular franchise can make. Each franchise company must provide potential new franchisees with a Franchise Disclosure Document (FDD). The document, which can range into the hundreds of pages, breaks down various aspects of a franchise, including startup costs, royalties and other anticipated ongoing costs, restrictions and obligations as a franchisee, and potential revenue.

Item 19 in the FDD provides the best answer a parent company can provide about potential earnings. Though it should be noted: Franchise parent companies tend to not provide an exact minimum amount of potential revenue to protect themselves from lawsuits if any franchisee does not reach the number advertised.

Number of Jobs Generated by Franchising

Franchises create jobs in their communities and beyond. For example, it is estimated that 8.2 million people in the United States are directly employed by a franchise. However, the total impact of franchises on employment is much greater.

Not only are there employees at each business location, there are also employees that transport goods, provide delivery of materials, operate the warehouses that distribute their supplies, and work in the factories or farms that supply its goods.

As for geographic distribution, based on estimates from the International Franchise Association (IFA), the Southeast has the largest franchise concentration compared to other regions. The Midwest is the second-largest region in terms of franchise establishments, followed by the Western, Northeast, and Southwestern regions.

On the state level, the top 10 states for franchise growth in 2022 (in order) are projected to be Texas, Florida, Arizona, South Carolina, Idaho, Tennessee, North Carolina, Montana, Nebraska, and Nevada.

Franchising’s Impact on Local Economies

Taxes paid by individual franchises support their local communities. Those funds go to support schools, emergency services, and road repairs. Franchises create jobs and expand to new locations more quickly than other businesses. The franchises help the local unemployment rates by providing jobs for many types of people.

Many franchises become involved in their local communities by supporting non-profit organizations and schools. Many franchises will join regional business associations, sponsor local sports teams, volunteer employee time, or donate to charitable organizations. In return, the public is more likely to patronize their business keeping the money in the community.

In addition, franchises support many jobs and businesses. Through their everyday ordering of supplies or the use of local services, the franchise is putting money back into the community and supporting the local economy. Published research posits that 90% of franchise generated income stays in their community, while corporations are the opposite. The money they earn typically heads to the company’s corporate headquarters. Approximately, 72% of voters believe small businesses are more likely to give back to their community versus large corporations.

As one of the largest forms of employers, franchises offer many benefits to their employees that extends out into the community. Franchises are known for their consistent training processes set by the parent company. On-the-job training empowers people to learn new skills and trades with or without a post-secondary education.

As a result, the local economy gains more skilled and semi-skilled workers that earn an income and create an output of labor. Other consumers then take advantage of the employee’s training by purchasing a service or product that they created.

Franchising’s Impact on the National Economy

The IFA creates an annual report detailing the most current industry statistics. Per its 2022 report, the GDP contribution of franchises to the overall economy “will remain stable at 3% in 2022.”

The total combination of jobs, annual payroll, and annual output of franchises has been said to add up to approximately 7% of the GDP. Non-franchised businesses grow because of the purchases of franchises and the purchases made by the owners and workers. Per IFA research, 73% of voters believe that franchises support the national economy and, comparably, 75% of American voters believe franchises support the communities they operate in.

Why Franchising is So Popular

The reason franchising is so popular can be largely defined by how you identify your relationship with it.

For consumers, franchising provides them with a familiar set of service providers to accomplish their needs. People are predominately creatures of habit, and dealing with franchises allows them to have an idea of what they should expect wherever and whenever they patronize a franchise brand. For example, it doesn’t matter if you’re visiting a McDonald’s in California or Connecticut, America or Australia, you should have a similar experience wherever you are.

For franchise owners, aka franchisees, a couple of the main benefits of purchasing a franchise are the already established product/service and branding. In exchange for their buy-in and labor, franchisees gain access to the franchisor’s know-how and experience for its business system. This way, those who want to own a business can shorten the learning curve that comes with starting a business. It’s also a way for those people to avoid spending a significant portion of the time and money spent that typically accompanies developing a business idea.

What is the Future of Franchising?

Successful franchises tend to grow new locations faster than traditional small businesses. The quick expansion is in response to consumer demand.

Franchises offer stability for owners and consistency for consumers. Half of all new businesses fail within their first year, whereas a typical franchised business is still open after five years. These positive franchising results have led to a positive cycle of growth and the creation of a lucrative industry with an average of 300 new franchise brands created annually.

Recessions, such as the ones 2008-2010 as well as the pandemic, took a toll on the U.S. economy. However, franchises fared better during these times than most other retail chains and small businesses. They have been proven to be more economically stable largely because of their branding, familiarity to consumers, and strong network base.

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Current trends and the future forecast for franchises predicts greater expansion. Many more independent businesses are deciding to franchise in the United States, and FRANdata reports a significant “jump of international-based brands coming into the US market.”

How Successful are Franchises?

If you’re considering owning a franchise, you’re probably deep in research. What are the franchise success statistics? What are the franchise failure statistics? Does it make sense for you to open a new franchise location or pursue an existing franchise location for sale?

Here are some interesting U.S. franchise success statistics.

• There are nearly 674,000 franchise owners, according to Zippia.
• The Bureau of Labor Statistics reports that about 20% of independent businesses close after two years. In contrast, franchise consulting firm FranNet reports that 92% of franchisees were still going strong after two years.
• About 65% of all franchise owners are men. However, female franchise ownership jumped by 38% over the past decade, and of all new franchises opened in the last two years, 32% are owned by women. 
• 10.5% of all businesses are franchises, according to the U.S. Census Bureau.
• About 62% of franchise owners have a bachelor’s degree
• About 14% of all franchisees are veterans. As of 2021, veterans own 66,000 franchises and generate $41 billion in GDP.
• The U.S. franchise sector is comprised of more than 780,000 businesses.
• Franchises account for about 3% of national GDP.
• The top franchises in 2021 include businesses in fast-serve restaurants, home services, real estate businesses, and travel.

Bottom Line

Having the strategic and contingency plan allows franchising businesses to flourish and generate a larger revenue and profits for both franchisor and franchisees. In this way, we can understand the mutual benefits of franchising business.

Pursuing own business may not be possible for all entrepreneurs but franchising gives entrepreneurs to start a business with less capital and less risk. In this way, we can say that franchising is truly a smart business solution.