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Growing Your Business Through Franchising
Growing Your Business Through Franchising
By Nickolas James on May 27, 2009
FRANCHISING AS A BUSINESS BUILDER
Franchising is a common, and most often a highly effective means of expanding a business. For a company or entrepreneur franchising offers many advantages:
Economical expansion
Franchising is an economical means of expansion. You don’t have to fund the whole exercise yourself because you are effectively sharing costs with your franchisees. It reduces the amount of capital you must raise yourself and the costs and problems involved with borrowing or finding investors. The capital you do invest goes to building up the number and size of each individual franchise, effectively “leveraging” greater growth for a given input.
Enhanced prospects for success
Franchising enhances your prospects for success in one key respect – people. When you expand with franchising, you’re working with people who care as much about your business and will work as hard for its success as you do. They will be motivated members of your team, committed to making business a success – because their money is at stake.
Reduced overheads and staffing responsibilities
Franchising eliminates major head office responsibility – HR management and personnel – that you would otherwise have to carry as an overhead. Franchisees take on the responsibility of finding/replacing, training, paying, motivating and incentivising staff.
Improved management monitoring and financial control
The standardised nature of the true business format franchise means you have a built-in set of performance measures. You can tell immediately how well each unit is performing, take remedial action if necessary – or take advantage of new opportunities e.g. an area where market demand shows another franchise could be profitable.
Economy-of-scale benefits
The economy-of-scale benefits that come with expansion. You can secure preferential terms with suppliers – large scale promotion becomes feasible – you are more likely to secure good sites in prestige retail developments, where the promoters prefer established names that will attract shoppers.
Quality control over your concept
You maintain control over the integrity and quality of your concept for the business and the way it is marketed. There is a binding legal agreement that should nail down every aspect of the business.
Things to consider
A head office
The franchisor still needs to maintain a head office to provide a number of resources centrally. Franchisees depend on, and will demand this support.
Franchisors still need management
Franchisors need to manage franchisees. Although they aren’t employees, they will still require a certain amount of operational control and guidance from the Franchisor’s team at the central support office.
Could you franchise your business?
There are several criteria that make a business suitable to franchise:
Trialled and proven
The product or service the business sells should be thoroughly trialled and proven, and be backed by a complete business system.
Distinctive
The product/service package should be distinctive and ideally, a little different from any competitors. The more distinctive and different it is, the less risk of the idea being “cloned” by a competitor.
Adaptability
The product/service should be able to work in a number of different locations.
Transferable skills
The skills involved in the business, and in managing it, should be capable of being passed on and learned by others in a reasonable time frame, at a reasonable cost.
Reasonable returns
The business should have significant margin in it to provide reasonable returns to both franchisee and franchisor. After making reasonable payments for ongoing servies provided by the franchisor, the franchisees need to be able to obtain both a reasonable return on their investment and a good reward (salary) for their work.
Developing a franchise business
As in planning any business expansion, developing a franchise business is a major project that needs to be tackled methodically, with sufficient time and resources.
Market research
You may have an existing business that is viable – or an idea that you’re sure would work. But to assess the potential and whether it is worthwhile pursuing as a franchise, you will need to research the market early in the process.
Ironing out the bugs in the system
Before franchising, the business will need to be thoroughly trailed before it can be taken to the franchise market. It is vital to:
Confirm the viability of the concept, whether it is workable and whether there is enough profit margins in it.
Identify problem areas – In the operations manual, in your central office functions or in the legal agreement.
Provide opportunities to experiment with various elements of the mix to find the most cost effective, practical ways of producing and delivering the product or service.
MOST IMPORTANTLY: Seek advice!
To avoid unnecessary expenditure, draw on the experience of others. You will need professional advice in a number of areas – accounting/ finance, legal, property/ surveying. Specialist franchise consultants are a crucial source of advice about the planning and development of a franchise system. In all these disciplines you should seek out those who have experience in franchising.