Should I franchise my business?
Franchising Vs Going It Alone
One of the prime advantages franchising has over going it alone is that a franchisor is afforded the ability to expand its business without having to provide all the capital or employ others to achieve that expansion. Indeed, the primary barrier to expansion faced by today’s business person is capital. Franchising is a method of business expansion that minimises the risk of debt and/or the cost of equity as it is the franchisee that provides the initial investment at entry level allowing a franchisor to expand its business with minimal capital expenditure.
For franchisees, the risk of starting a business from scratch is reduced because the franchisor has already tested the water with the business concept via pilot schemes and an established system. Franchisees also benefit from the Franchisor’s experience along with bulk buying power and discounts in acquiring goods and services. It is also often easier for a franchisee to gain finance from a bank if they a part of an established franchise system.
Statistically, franchised businesses tend to perform better than non-franchised businesses. However, not all businesses are suitable for franchising. Before choosing franchising, an astute business owner must realistically assess whether their concept, style of business and their personal and professional goals are suitable. For instance, can the business be replicated and successfully carried on by others? If you realise that your business concept has been successful primarily because of your own abilities, presence and drive, then perhaps franchising is not for you.
Franchising needs to have a proven system in place. An important thing to consider is resources. Do you have enough manpower, financial backing and infrastructure to offer the recruitment, training, marketing support and ongoing provision of goods and/or services that a strong franchise system requires? All these can place an exhausting demand on financial resources, so be careful to expand at a rate which your resources can withstand. This is where sound expert advice is paramount.
The process of franchising
Franchising is a relatively flexible format, and just about any type of business can be franchised, provided it meets some basic characteristics. This is where franchise feasibility can be very helpful in helping any business owner deciding whether to take the franchising road to expansion.
When a company makes a decision to franchise, it must first develop a sound plan for expansion that takes into consideration the numerous issues confronting a new franchisor such as speed of growth, territorial development, support services, staffing, and fee structure, to name a few. Larger companies need to address more complex issues such as channel conflict, anti-trust, and resource allocation issues. Obviously, this entire plan needs to be subjected to rigorous financial analysis and scrutiny to fine-tune the strategy for growth.
The franchisor then needs the proper legal documentation. At a minimum, the franchisor will need a franchise agreement, disclosure document and, depending on where franchises are being granted, state registrations.
Quality control for a new franchisor involves the development of highly developed systems and documentation. Generally, this translates into the development of an operations manual containing not only the systems used by the business, but also the checklists, policies, procedures, and tactics that will allow these systems to be uniformly enforced.
Finally, the new franchisor must develop the ability to market and sell franchises. This requires knowledge of how to attract the prospective buyer and the necessary marketing materials that will help make the sale. The franchise sales process is highly regulated and therefore, the franchisor must also be educated in proper sales, disclosure, and compliance techniques.
Every new franchisor quickly learns that regardless of how the franchisee makes money, the franchisor has two roles in life – selling franchises and servicing franchisees. Of the two, ensuring the success of the franchisee is the most important.
Properly structured, franchising can allow small companies to more effectively compete with much larger competitors. It can also allow large companies to gain the advantages of highly motivated site/area management while reducing overheads. As such, franchising is an option that more and more companies should explore.
If you are considering franchising your business, Franchise Central is offering a FREE FRANCHISE FEASIBILITY (normally $1100 + GST).
If you have questions, Franchise Central has answers!
CLICK HERE to contact Franchise Central or call us on 1300 558 278.