Why you could franchise your own business
If you're thinking of franchising, a franchise opportunity can offer some businesses the chance to optimise their returns, but not many people are aware of what franchising involves.
Why franchise a business?
Franchisees propel their investment by using an existing, profitable business model that has an established brand. This develops faster learning and bigger economies of scale that are the advantages of being part of a network.
The advantages for a franchise owner include:
- Fellow franchisees helping to grow your business, in turn generating returns for you without you having to invest in a new branch of your own – and do more hard work.
- They are motivated to work hard because they are running their own business (in accordance with your already developed and reputable franchising manual).
- You retain ownership of your brand, business processes and other intellectual property.
- You control and oversee how franchisees run their businesses, so they maintain and develop brand value for you. The more valuable your brand is, the easier it is to recruit franchisees, and for franchisees to achieve.
- If you buy stock or anything else on behalf of, or to supply, your franchisees, you can get considerable discounts or other benefits from suppliers, enhancing cash flow finance.
Which type of businesses are suitable for franchising?
Not all businesses can, of course, be franchised. Some requirements include:
- Your business must be easy to replicate for new franchisees to develop.
- The market must be large and open enough for the number of franchises you plan to allow.
- Your products or services will give franchisees a good competitive advantage to win business and provide them with a better profit than starting their own business or buying into another franchise.
- Your brand already has market profile and reputation.
- Intellectual property is legally protected (eg your brand has been registered).
- You have the correct skills and experience to pick suitable franchisees.
- You can provide the services and support they need.
- You can update your products and services if the market changes.
- Margins are large enough to pay and provide the franchisees with a living.
- Those with customers who are loyal to the owner personally, not the brand.
- Where franchisees will need long and expensive training to sell the specific products or services. Those that hope franchising will be the answer to declining profit.
Should you create a franchise?
Starting out as a franchiser is a lot of hard work, and your initial investment can be very large. Some franchisers even provide franchisees with their own premises and/or funding to help them, which adds a layer of risk.
You then have to recruit the right franchisees. One bad franchisee can significantly reduce profitability and brand value and it can be hard to remove them once they are running a franchise.
You must try to keep franchisees happy with your services, including improving your products or services and developing new ones if the market changes, as well as giving them courses in suitable aspects such as training and marketing.