If you’ve worked hard to establish your business and have achieved success in one or two locations, have you considered that your business may be perfect for franchising? As with any business model, franchising has its benefits and drawbacks that you’ll need to fully evaluate. You will also want to consult with an expert before you make any final decisions. But in the meantime these are some of the pros and cons that you may want to consider…
The advantages of franchising your business…
- Access to expansion capital. This is the most obvious benefit to a prospective franchisor; funding your expansion from franchisee investment in start-up costs and the payment of initial and ongoing franchise fees. Franchising can generate high financial returns for relatively little risk and, in addition, each franchisee also carries their ongoing expenses, such as staff salaries, removing what can otherwise be a significant overhead as you expand.
- Accelerate expansion over a wider area. Franchising largely eliminates big issues such as money, managers and employees; enabling your business to expand geographically at a rapid rate and with online technologies and communications international expansion becomes more feasible.
- Access to better talent. A franchisee brings far more personal commitment and motivation than a normal employee. They have a vested interest in their franchise being a success and will go the extra mile to get things done – none of the ‘none to five’ mentality often associated with employee.
- Reduced involvement and demands upon your time. When you have built your network of franchisees they will require less maintenance than running a multi-outlet business. Leaving you free to concentrate on growing the business in other ways.
- Shared advertising. By including advertising fees as part of the ongoing franchise costs (often between 2 to 5% of turnover) you can build a significant fund to help promote the business and attract more franchisees. As your network grows there is also the potential for leveraging the buying power of your network to negotiate favourable terms with suppliers!
The disadvantages of franchising your business…
- Reduced margins. Your concept or product will need to have sufficient volume, pricing and staying power to support profit for both you and your franchisee.
- Loss of ownership. With franchising you’re effectively sharing the ownership of your concept or product. With the wrong partners this could have a negative impact on your profits and reputation.
- Exclusivity. Many franchisee agreements grant exclusive areas within which franchisees operate to protect them from direct competition. If the franchisee doesn’t exploit the full potential of the area you could be losing out on sales and profits.
- Change of your role. Not everyone is cut out to be a franchisor. When you franchise your business you will be leaving the role of ‘business operator’ and taking on the role of ‘franchisor’. The management skills required to grow, train and manage a franchise network are different from managing employees and directly running the business.