Why You Should Franchise Your Business
Franchising is all about replicating a well-defined, proven and successful business concept. There are plenty of benefits to reap, both financial and market-based, when choosing to franchise. The franchisor and franchisee each have financial and emotional interest and investment in the business, creating an environment of collaboration and commitment. Choosing the right franchise partners is critical. Not all will have the needed level of motivation and ability to succeed; the selection process must be rigorous and thorough.
• Expansion – a franchise network can expand more quickly than company owned businesses, as the franchisees are fueling the process with new investment capital without tapping into the parent company’s resources, bankers or other investors.
• Talent – in addition to possessing local area market knowledge and a community presence, most franchisees tend to be highly qualified, hardworking people who would prefer to invest in a business in return for profits versus taking a salary as an employee; they share the entrepreneurial spirit.
• Exposure – increased ‘natural’ advertising through regional, national or even global presence; consumers in one market often promote interest in your business with consumers in other markets, especially as the power and reach of social media continues to swell.
• Set-up Costs – The franchisee pays a fee to become part of your business, and absorbs the cost of setting up the franchise, as well as recruiting and training staff, and day-to-day operational costs.
• Revenue – In addition to incurring the operational expenses, the franchisee will continue to pay a percentage of their revenue through royalties for the duration of the franchise agreement.
• Economy – Supplier costs can be reduced by obtaining lower per unit prices as volume increases across the entire franchise network, benefiting both the franchisor and franchisees.
• Management – the day-to-day running of the business units is managed by the franchisee via a clearly defined franchise operations manual; this frees up the franchisor to focus on managing the overall brand, while monitoring the key performance indicators (KPI) of the business units.
Maintaining a consistent product and level of service, critical to the long-term success of the business, is a goal that is often aligned for both parties. However, there are some areas where conflict can arise between franchisors and franchisees. Like any business model there are not only benefits, but drawbacks.
A franchisee is an independent business owner, and even with a franchise agreement, enforcing compliance can be challenging when the goals of each are at odds. Coupons and promotions are the simplest example. Coupons (or promotions), while driving in business and increasing sales, don’t always increase profits. Franchisors benefit from increased sales while franchisees benefit from increased profits.
Sharing the costs of advertising campaigns can also be challenging with some franchisees hoping to get a ‘free ride’ off the efforts of other nearby franchise owners rather than participating directly. Additionally, introducing new products or innovations can be tedious as well, requiring the franchisor to negotiate the process rather than simply putting it in place.
If you decide to franchise your business, be sure to consult the experts such as a franchise consultant and a franchise attorney. Additional industry experts can be called on as you move forward such as franchise architects, recruiters, marketers and other operational advisers. Franchising isn’t the right solution for every business concept, but when the advantages outweigh the disadvantages it can be an excellent formula for growing your business exponentially.