Getting started in the SME business world is daunting. If you are looking at purchasing an existing business, the banks will look at the historical performance of the business, who’s involved, the industry sector, leases, location and a myriad of other factors. If you are looking at a start-up, it gets even harder. Either way, for savvy investors seeking the most fundable ventures, the smart money is on a franchise business. Here’s why:
Proven business model
At the heart of the franchise business model lies a proven and replicable business system. Unlike independent start-ups that must navigate uncharted waters, franchise businesses operate within well-defined frameworks honed through years of trial and refinement. The franchisor has already laid the groundwork, fine-tuned operational processes, marketing strategies, and customer service standards to perfection. As a result, franchise businesses boast higher success rates and lower failure rates compared to their independent counterparts. This track record of success instils confidence in funders, making Franchise businesses an attractive option for funding.
Higher gross profit
Franchise businesses possess a unique advantage when it comes to delivering higher gross profits. Through the implementation of standardised systems, collective purchasing power, and the sharing of collective knowledge within the franchise network, franchisees can achieve economies of scale that are simply unattainable for independent businesses. By leveraging these resources, franchisees can optimise operational efficiency, minimise costs, and maximise profitability.
Whether it’s negotiating favorable terms with suppliers or implementing best practices in marketing and sales, franchise businesses are well-positioned to deliver impressive gross profit margins. The banks know this, and the better the system performance, the better the individuals’ chances of being able to be funded.
Secret weapons
The above points make the assumption that banks and other funders have knowledge and understanding of a particular franchise system or perhaps a particular sector. In many cases they do, they have these insights through what are perhaps franchising’s twin secret weapons when it comes to fundability: benchmarking and franchise relationships with banks.
Benchmarking allows franchisees to analyze and adopt best practices within their industry. It’s a powerful tool used to measure performance and identify areas for improvement. By comparing performance metrics across the franchise system and individual businesses, franchisees gain valuable insights into their strengths and weaknesses.
Quality benchmarking also fosters a culture of continuous improvement within the franchise network, ensuring that franchise businesses remain competitive and resilient.
When it comes to a start-up, banks will rely heavily on the systems benchmarking information to make a funding decision. In many cases, for the independent business, this type of detailed information is just not available.
The second secret weapon is franchises often enjoy longstanding relationships with banks and financial institutions that specialise in lending to the franchising sector. These institutions have a deep understanding of the franchise business model and its inherent strengths.
As a result, franchisees enjoy easier access to funding and financial support, whether it’s in the form of loans, lines of credit, or other financing options. This support from banks further enhances the fundability of franchise businesses, making them an attractive investment opportunity for savvy investors. Moreover, the proven track record of success and lower rates of failure associated with franchised businesses further mitigate the perceived risks for lenders, making them more willing to offer favourable terms and conditions.
The fundability of franchise businesses stems from their proven business model, higher success rates, and ability to deliver higher gross profits through standardised systems, purchasing power, and collective knowledge.
Additionally, franchise businesses leverage secret weapons like benchmarking and strong relationships with banks to maintain their competitive edge and attract funding. For investors seeking stable returns and low-risk investment opportunities, franchise businesses emerge as the gold standard in the world of entrepreneurship.
