Should you franchise your business?
A quick look at a proven method of expansion
Franchising provides a means to grow your business nationwide or internationally without having to invest in staff or premises.
Unless you can run a business from a central location, geographical expansion can be prohibitively expensive. For instance, to establish a presence in another town or city a retailer or restaurant owner is looking at hiring staff, buying equipment and renting premises ahead of any revenues being taken. An alternative is to licence the ‘business format’ to third parties seeking a franchise opportunity. These franchisees will bear all or part of the cost of setting up franchised versions of the parent business.
Pros and cons
The attraction for the franchisees is that they get to run their own operation on the back of an existing brand which has proved itself to be successful. The business franchise owner gets a share of the profits and usually an upfront fee. In addition to additional revenue, the profile of the business is raised, with franchisees taking on the financial risk.
However, in the longer term, franchising limits your earning potential as you will be receiving just a percentage of the profits, with the franchisees keeping the rest. Also bear in mind that if poorly managed, franchises can damage the brand.
Is it for you?
Not all businesses are suitable for franchising. The prerequisites are a recognisable brand (McDonalds, KFC and Body Shop are all examples of businesses that have expanded on a franchise basis) or an idea that would be difficult to replicate. The margins must be high enough to ensure that all parties get a decent return. Retail is a strong area for franchising as is direct sales.
What you need to do
Franchisees quite reasonably expect support from the brand owner. Typically this will include training, the centralised bulk purchase of supplies to keep costs down and the provision of marketing materials, some centralised management services and product development.
Providing this kind of support also benefits the brand owner. Training your franchisees helps to ensure consistent standards across the organisation as does the provision of on-message marketing literature. Equally, bulk buying supplies will keep costs down for everyone while again ensuring consistency.
Finding out more
Further information on the business franchise market can be obtained from the British Franchising Association at www.thebfa.org.