Should You Franchise Your Business?
Do you have family, friends, and customers telling you that you should franchise your business? Should you give franchising some additional thought?
Is Your Business “Franchisable”? Start by asking . . .
- Is there a wide market for my concept?
- Do I have a point of differentiation?
- Is the concept duplicable?
- Is my concept saleable?
- Does my concept offer a reasonable return on investment to prospective franchisees?
If the answer to questions like these is “yes,” read on!
How Franchising Works
Generally speaking, franchising means opening additional outlets through the sale of franchise rights to independent investors who will use your name and system of operations. A franchisee pays a franchisor an initial franchise fee in return for the rights to operate a business under the franchise trademark and for training in how to operate the business. For many business owners, franchising can appear to be the ideal form of business expansion.
In many systems a franchisee will pay an ongoing periodic royalty fee for continued support and training in advertising, marketing, sales, operational guidance, financial and human resources consulting, and other services.
Perhaps most important from your perspective, a franchisee furnishes all of the capital required to start the business and assumes all risk for success of failure.
One of the main reasons companies choose to franchise is the low cost associated with growth. Since the franchisee typically supplies all the working capital and pays for the right to do so, a new franchisor need only invest in the appropriate legal documentation, strategic planning, operations manuals, and marketing materials, and he is “in the business” of franchising. Franchisees are responsible for the entire investment in opening locations and, because of that investment, they are highly-motivated to perform well — allowing franchisors to grow far faster than they might otherwise.
The key to success in any franchise system is, and always will be, the success of its franchisees. With that in mind, one of the most important things for a new or established franchisor to do is to constantly strive to improve the value proposition — both at the franchisee and at the consumer level. So, the more you can do to improve the core value proposition to the consumer, the better each franchisee’s financial returns are likely to be. Successful franchisees need less in the way of support and pay the franchisor more in the way of royalties than do their unsuccessful counterparts. And, of course, this brings the added benefit of improving franchise sales. Nothing sells franchises faster than franchisees that are exuberant about their returns from a particular franchise offering.
Ultimately, of course, it all reverts to your ability to structure a program that delivers value. If franchisees succeed in delivering value to the customer and you succeed in delivering value to the franchisees, you’re much more likely to create the win-win-win relationship that’s the hallmark of successful franchising.
Franchising can be a tremendously advantageous — and fast — way of expanding a business, particularly for the entrepreneur who lacks the time, the manpower, and the finances to open several company-owned locations alone. And it is a strategy that prospers even during times of economic uncertainty.
Franchising can be complicated if you do not know what you are doing. While franchising is often the fastest way to grow a business, it is not something you should venture into lightly. Franchising is regulated at both a state and federal level, and with some 3,000 franchisors competing in the franchise sales marketplace, it is important you know how to find and sell them. And, of course, any time you will allow an independent contractor to use your brand, you need to have a careful plan for controlling quality. But despite its complications, franchising, done right, remains the most dynamic growth vehicle in the history of business.
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