Franchising has become established around the world as the low cost way to rapidly expand your business. A franchise strategy is widely used by every size and type of business and it works in most business sectors. It can be used within your own country to speed domestic expansion, or to spearhead an international growth drive into other countries. But what are the specific benefits of franchising your business that tempt so many companies to employ this strategy?
You will have heard the old adage that the best way to grow your business is using someone else’s money? Well, franchising does just that. Your franchisees introduce capital into your business to open new trading units. This immediately lifts one of the main constraints to business growth – available capital.
Franchising allows for a fast rate of business growth due to a combination of factors. Obviously, the introduction of capital by your franchisees is one factor, but there are others, including the fact that you are outsourcing the other resources required to expand a business to your franchisees.
How much management time and resources would it take to open ten new trading units of your business? Now contrast that with the minimal resources required to support ten franchisees to do the same. You begin to see how easy it is to scale through franchising.
Increasing the Value of Your Business
Increasing the value of your business isn’t just about increasing the bottom line. You may be in an emerging sector and need to effect a land grab to become a player in the market, or need to demonstrate a growth story to would-be investors, or even just need to grow brand presence in your market – franchising is an ideal way to achieve all of these business value enhancing goals.
Not only can you charge your network franchise fees, but it is accepted practice to require your franchisees to contribute to your marketing. This central marketing fund can really boost your marketing firepower and help increase business.
This is an easy one to get your head around – particularly if you have ever managed disinterested employees! If the person managing one of your operating units has invested their own money into it, they are motivated to perform well.
Local Knowledge and Contacts
One reason independent businesses often cite for being able to outmaneuver and compete against larger businesses is their knowledge and understanding of the local market and their local contacts and connections. As a franchise, you and your franchisees can actually have the best of both worlds – their local knowledge and presence combined with your national brand.
Group Buying Strength
Again, not difficult to understand – having a network of franchisees allows you to negotiate group buying discounts on all manner of supplies.
De-Risking Your Business
This factor isn’t often initially discussed as a reason to franchise your business, but it is a huge benefit of franchising, so you should be aware of it; having a franchised network rather than a wholly company owned network, significantly reduces the risk to your business of fluctuations in trade e.g. such as that caused by a recession.
Ongoing franchise fees are typically based on franchisee turnover and NOT profit. So as a franchisor, you are not exposed if franchisees make losses, but only exposed to the extent of their reduction in revenues. Whilst it isn’t what anybody wants, a franchisor is still able to be profitable during difficult trading periods.
Hopefully this article has answered some of your more general questions about franchising, but you will no doubt have many more, and in particular, specific questions about your own business. TFC advises on all aspects of franchising and we are always happy to offer a Free, no obligation meeting to answer your questions. Or you can go to How to Franchise to find more information on the subject.
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The Franchising Centre