Key Harrington Barnes, PC

Growth and cost benefits for Texas franchisors

Franchising is a business model that offers many opportunities for some Texas entrepreneurs, including risk reduction, motivated management, capital and a high growth rate. Capital is the biggest barrier for small businesses, and franchising allows business owners to expand their presence without investing significant equity and incurring the risk of debt. Since franchisees take responsibility for the lease and multiple contracts, the franchisor faces greatly reduced risks with a much lower capital investment.

Finding good managers is another problem entrepreneurs have when expanding their businesses, but franchising allows businesses to substitute an owner for a manager. This solves the problem of finding motivated management. Speed of growth is also an important franchisor benefit, because operating a single business unit requires time and extensive marketing to result in growth. Franchising allows franchisors to use existing human resources to compete with larger businesses.

Franchising lets entrepreneurs function with fewer employees than they would have if operating independently. The managerial aspect of franchising also comes with advantages, such as not being liable for day-to-day problems. Franchisees manage crew member issues, and it is their responsibility to find crew member replacements if someone calls in sick. Franchisors also experience high profits with lean business models and improved business valuations. They can expect to penetrate secondary and tertiary markets which would be considered marginal for others, and have reduced financial risks overall.

Owners of corporations that are in certain industries can benefit from the franchise structure in many ways, but it is advisable to consult with an attorney who has experience with these matters at the outset. The sale of franchises is highly regulated by federal and state law, and an attorney can describe the types of disclosures that are required to be included in offering documents.

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