Franchising is an increasingly popular business model for entrepreneurs and business owners looking to expand their reach and tap into the power of well-established brands.
With the potential for greater success and growth, it’s no wonder that many are considering franchising as a viable option.
But which business structure should you choose for your franchise?
In this article, we’ll dive into the world of franchises across various structures, such as LLCs and corporations, and uncover the factors that contribute to their success.
Franchise Growth Across Business Structures
As the franchise sector continues to expand, it’s essential to understand how different business structures are faring in this competitive landscape.
According to Statista, the number of franchise establishments in the United States has grown consistently over the past decade, reaching over 785,000 in 2021.
This growth is evident across various business structures, including LLCs, corporations, and partnerships.
Limited Liability Companies (LLCs) have become an increasingly popular choice for franchises due to their flexibility and simplicity.
In fact, a 2019 study found that LLCs account for over 60% of newly formed franchise entities.
This is likely because LLCs can provide some of the same protections as corporations, such as limited liability, without the complexity of a corporate structure.
Corporations, on the other hand, remain the choice of larger franchises.
According to Franchise Direct, corporations offer benefits such as better access to capital and more robust legal protection, making them attractive for larger franchises with more substantial assets.
Success Rates of Franchises Across Structures
When it comes to success rates, it’s important to note that franchises generally have a lower failure rate compared to independently owned businesses.
A 2012 study conducted by the International Franchise Association found that the five-year survival rate for franchises was 64%, compared to 36% for independent businesses.
This suggests that franchising as a whole is a more stable and potentially successful business model.
However, the success rates for franchises vary between different business structures.
While there isn’t a definitive answer as to which structure is the most successful, there are some general trends.
For instance, smaller franchises operating as LLCs typically have a higher success rate, as the 2019 study mentioned earlier found that 75% of LLC franchises were still operational after five years.
This is likely due to the lower costs and reduced complexity associated with running an LLC.
Corporations, while often more expensive to establish and maintain, tend to have a higher success rate than partnerships.
According to a 2014 study published in the Journal of Small Business and Enterprise Development, corporations had a 62% success rate after five years, while partnerships had a 55% success rate.
This could be attributed to the increased legal protection and access to capital that corporations offer.
Factors Influencing Success
There are several factors that can influence the success of a franchise, regardless of the chosen business structure. Some key factors include:
- Brand recognition:
Franchises with strong brand recognition tend to perform better, as customers are more likely to trust and visit a familiar brand.
- Support from the franchisor:
Franchises that receive ongoing support and training from their franchisor are more likely to succeed, as they can adapt and grow with the changing market.
- Marketing and advertising:
Effective marketing and advertising strategies can help a franchise attract and retain customers, leading to increased success.
- Industry trends:
Keeping up with industry trends and adapting to changes in the market can be crucial for a franchise’s success. Franchisors that provide ongoing support and guidance in this area may have an advantage over those that don’t.
- Local regulations:
Different states and regions may have different regulations and requirements for franchises, so it’s important to research and comply with these rules to avoid legal issues that could impact the success of the franchise.
A franchise’s location can play a significant role in its success, with factors such as foot traffic, demographics, and competition all playing a part.
Strong management and leadership skills are crucial for the success of any business, including franchises.
- Customer satisfaction:
Ultimately, the success of a franchise relies on customer satisfaction. Franchises that prioritize customer service and experience are more likely to succeed than those that don’t. This includes factors such as product quality, cleanliness, friendliness of staff, and responsiveness to customer feedback.
In conclusion, the success of franchises across different business structures varies, with no one-size-fits-all answer.
However, by understanding the growth and success rates of franchises across structures like LLCs and corporations, as well as the factors that influence their success, entrepreneurs and business owners can make informed decisions when considering entering the world of franchising.
Are you ready to take the plunge and start your own franchise journey?
Make sure to weigh the pros and cons of each business structure and choose the one that best aligns with your goals and needs.
And don’t forget:
Success isn’t just about the structure you choose, but also the hard work, dedication, and passion you bring to your franchise.
- Statista - Growth of franchise establishments in the U.S.
- 2019 Study - The Limited Liability Company: An Empirical Study of the Newest (and Most Popular) Business Form
- Franchise Direct - Why Franchises Are Often Structured As Corporations
- 2012 IFA Study - Franchise Business Economic Outlook
- 2014 Study - Journal of Small Business and Enterprise Development