All too often, says Entrepreneur, a business owner spends months looking for and training a new manager, only to see them leave or get swiped by a competitor.
“Another stumbling block facing many entrepreneurs wanting to expand is finding and retaining good unit managers,” it says.
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“But franchising allows the business owner to overcome these problems by substituting an owner for the manager. No one is more motivated than someone who is materially invested in the success of the operation.”
Franchising allows franchisors to function effectively with a much leaner organisation, says Entrepreneur.
“Since franchisees will assume many of the responsibilities otherwise shouldered by the corporate home office, franchisors can leverage these efforts to reduce overall staffing.”
Entrepreneur says the franchisor is not responsible for the day-to-day management of the individual franchise units.
It says: “At a micro level, this means that if a shift leader or crew member calls in sick in the middle of the night, they're calling your franchisee, not you, to let them know. And it's the franchisee’s responsibility to find a replacement or cover their shift.”
Entrepreneur says staffing leverage and ease of supervision allows franchise organisations to be more profitable.
It adds: “Since franchisors can depend on their franchisees to undertake site selection, lease negotiation, local marketing, hiring, training, accounting, payroll, and other human resources functions, the franchisor’s organization is typically much leaner.”
5. Value multiple
Franchises are often valued at a higher multiple than other businesses, says Entrepreneur, given the combination of their growth, profitability and organisational leverage.
“So when it comes time to sell your business, the fact that you're a successful franchisor that has established a scalable growth model could certainly be an advantage.”
The ability of franchisees to improve unit-level financial performance has some weighty implications, says Entrepreneur.
“A typical franchisee will not only be able to generate higher revenues than a manager in a similar location but will also keep a closer eye on expenses,” it adds.
“Moreover, since the franchisee will likely have a different cost structure than you do as a franchisor, they can often operate a unit more profitably even after accounting for the royalties.”