Franchising is an excellent way of expanding a business that is already successful. However you should be aware that franchising is not suitable for every business.
Understanding the advantages and disadvantages of franchising will enable you to decide if franchising is a suitable option for your business expansion.
Advantages of franchising your business
- Grow your business – franchising your business can be a cost-effective way to grow your business. You will not have to cover the cost of investing in new premises or staff. Additional sales lead to additional profit and if you retain this in the business, in the long-term, you should have a saleable asset for your future.
- Costs – each franchisee finances their own franchise outlet. While the franchisee meets all the costs and collects the income, you receive franchise fees and royalties or a mark-up on products sold by the franchisee.
- Easier management – the franchisees also run their businesses therefore reducing the management demands placed on you. The best franchisees will be highly motivated and have local expertise, making your life much easier.
- Develop your brand – the more franchisees you have the better known your brand becomes. Your brand benefits from the capital investment of the franchisee.
- Motivated franchisees – franchisees are likely to be more motivated than a manager as they have a vested interest in the success of their business and therefore the success of your brand.
- Purchasing power – a larger business is more secure and additional turnover and profit can provide access to better deals for office equipment, vehicles and other business purchases.
- Ideas for future success – franchisees can contribute fresh ideas for the future success of the brand maybe outlining opportunities that you might not have identified otherwise.
- Support from others – being a business owner can be isolating so having a franchise network can offer support and advice.
Disadvantages of franchising your business
- Not a fix for a failing business – franchising is not a solution to provide injections of capital from other people when a business is in difficulty. You should only go down the franchise route if you already have a successful business up and running.
- Costs – franchising your business will involve significant financial investment at the outset in order to get a successful franchise model in place for future growth of the business including investment in preparing legal documents, operations manuals, marketing materials and recruitment.
- Time – franchising will take a lot of time investment especially when initially setting up the franchise model. You will also have to take the time to ensure you attract the right franchisees and control what they do.
- Training and support – you will have to develop and deliver a suite of training and support for your franchisees to successfully sell your brand. Businesses need to have systems and procedures in place that can be copied by most people to run a successful business.