Franchising can help you save significant costs à la McDonald’s, Burger King & Coca-Cola.
But should you franchise your business?
Is your business franchisable?
Franchising – How Good Can It Be for Your Business?
If you run a successful business, it’s quite likely that your eyes are now set on replicating your success in other markets. Breaking into newer markets is, however, a resource-intensive endeavour that comes attached with great risks – so should you franchise?
Franchising presents a practical, achievable and proven to be profitable solution to the problem of expansion for various businesses. The driving force behind the idea of franchising is the simple matching of supply with demand – the businesses demand more and more capital to grow, and franchisees can collectively supply the money required. The franchisor adds value to the transaction by sharing their experience, expertise and brand, thus completing the transaction.
Despite this simple modus operandi, franchising may not always be the option for every business out there. If you are thinking of growing your business through franchising, you need to make sure that your business fits the franchising model.
Does Franchising Suit Your Business?
A cursory look at the way franchising works should be enough to tell us that franchising can – at least in theory – be used for any and every business out there. That, however, doesn’t mean that every business can be franchised with success. If you were to look at some of the most successful franchise businesses in the UK, a trend can be observed.
Franchising benefits those businesses the most that are based on easily quantifiable sales, use business strategies that can be replicated and are not impacted by the decentralisation of resources, as discussed below.
Is Your Brand Valuable?
Brand equity is the inherent market value attached to the name of your business by customers. Over the last few years, the culture of preserving and maintaining the brand value in a business has proliferated exponentially. The importance of brand equity is realised by many businesses in novel ways – from global, universally recognisable brands like Apple, Samsung and Barclays to young start-ups that can, at best, be classified as local businesses.
Businesses that are backed by reliable, trustworthy and recognisable brand names are the best candidates for franchising.
What’s the Nature of Your Business?
A lot depends on the nature of your business. Cash-rich, product-based or service-based businesses find it easier to adopt franchising than other businesses. The important metric here is the ‘replicability’ of the business.
Can your business strategies be replicated with ease in different locations? If yes, your business is likely to be suitable for franchising.
What’s in it for the Franchisees?
Your business may well be successful for you, but that isn’t enough if you want to adopt franchising. Once you have the franchisees on board, you will need to accommodate their share of profits within the overall profit margin of your business.
In simpler words, your business should have a wide enough profit margin to attract franchisees without hurting your original operations, price points, overheads and revenue.
Is Your Business Strategy Transferable?
Proprietary ideas and business strategies are what make entrepreneurship exciting. So, it’s safe to say that much of the value you will impart to your franchisees will come from the business strategies you have fine-tuned over a long time.
However, for your business to be able to use franchising effectively, these strategies need to be ‘transferable’. The knowledge associated with running your business should be well-documented and able to be transferred to new franchisees within a reasonable time period.
Can You Count on the Present Infrastructure of Your Business?
Being a franchisor means that you will be required to tread many paths and handle many tasks, all at once. Some of these tasks are:
- Training your franchisees
- Spending many hours shooting the on-site troubles
- Working on the logistics, administration and personnel management on a daily basis
- Monitoring all the franchise operations and quality control
- Staying on top of the financials and accounts
Having at your disposal robust administrative, operational and management infrastructure is perhaps the only way you can efficiently man these fronts.
If your business finds itself faring favourably on the counts mentioned above, franchising is one of the best options for you to help your brand grow. But before you take this option, it’s worth comparing the positives and negatives of the prospect.
Advantages of Franchising Your Business – Why You Should Franchise
- Cost-Effective Growth
Growing a business beyond a certain point can be extremely expensive. From entering new markets to retaining the customer base, every aspect associated with the growth of your business can carry prohibitive costs. Franchising allows you to bear these costs in an easier, cost-effective way.
- Steady, Reliable Revenue
Franchising allows you to enjoy steady, consistent and reliable revenue streams that can support the central operations. Initial franchise fees can help you build a lump sum body of capital that can be directed towards building newer resources, improving operations and cutting costs.Regular income streams like royalties, management fees, servicing fees and marketing fees help you sustain the central operations.
- Growth Benefits
Growing a business isn’t important just for the brand equity. A larger business can boast of stronger cash reserves, more motivated employees, higher franchise fees, more profitability and better cost management. This, if executed well, leads to a runaway effect that can exponentially increase the revenue of your business.
- Community Building
Franchising helps your business connect with individuals, families and communities in a way that few other ideas can. Building a network of independent yet closely linked business entities can be hugely beneficial in creating new products, building better services and fostering creative ideas.
Disadvantages of Franchising Your Business – Why You Shouldn’t Franchise
- A Sudden, Definitive Shift
Franchising, however profitable, will still mark a new beginning for you. This means that you will need to start from the scratch, shift your focus from your business operations to managing franchises, and significantly alter your working methods. Businesses that fail to make this shift usually end up gaining little from franchising.
- Capital Reallocation
Since your business is successful, it’s safe to assume that you have directed a large part of your idle capital towards investments. Going ahead with franchising will require you to redirect this capital towards franchisee training, location acquisition, legal fees and marketing expenses. This will require you to make use of the profit-generating capital by liquidation or collateralisation.
While you aren’t usually required to share ‘trade secrets’ with your franchisees, your core business strategies need to be made available to franchisees. Despite all the legal provisions guaranteeing non-disclosure, you will always have to deal with the discomfort that comes with sharing the strategies that you have worked for years on.
- Finding Franchisees
Just how franchisees need to put in a lot of thought before buying a franchise , franchisors need to spend many hours vetting applications to make sure that the franchisees they choose are capable and compatible.
Using Franchising to Your Best Advantage
You can reap the rewards that come with franchising if you go about the process in a systematic, thoughtful way. Many businesses treat franchising as a quick way of raising capital, never realising that having several discontent franchisees on board has already damaged their brand beyond repair.
Therefore, the best way to make franchising work to your advantage is to act as a responsible franchisor. Providing ample support, insight and help to your franchisees and incentivising their commitment to your business can lead to great results.