Many SME owners get to the point in the development of their business where they start to consider their various growth options. Could franchising be an option for you?

Perhaps you’ve built a successful product/services offering and may have built a strong brand; you’ve ironed out most of the key operational issues; you’ve developed systems and processes for running the business; sales revenue is ticking over nicely and the business is making a profit; you’ve got to grips with sales and marketing and understand your market place.

Now comes that time when perhaps you’re wondering what to do with the business next. Do you need an exit plan? Should you expand? If so how? What are your options?

This article will help you identify if in principle franchising could be a serious consideration for your business and how to go about exploring this exciting strategy.

What is Franchising?

The main principle behind franchising is that the franchisor has developed a successful method or system of doing business (business model) and then sells the rights – usually for a fixed term – to third parties (franchisees) to operate that business using that formula in other geographical areas.

The key point is that the franchisor has run the business successfully in exactly the same way that it is offered as a franchise and the business model has been de-bugged. In other words the business format or model is proven. The franchisor then transfers all this skill and know-how to the franchisees via training and ongoing support and in return franchisees pay various up-front and ongoing fees.

Franchising Your Business – The Ground Rules

Franchising is a tried and tested business growth strategy that has enabled many entrepreneurs to build wide-scale networks of local ‘branches’ or ‘outlets’ more quickly (and more profitably) than by other means. But not every business is suitable to be franchised and not all business owners are cut out to be franchisors. Here are some rules of thumb to consider before going much further:-

  • Your business model should be proven. The fundamental operational aspects of the business that franchisees would operate are tried and tested in similar commercial conditions to those in which the franchisees would operate. Franchisees are not guinea pigs!
  • The business model should be profitable. Franchisees are, in essence, buying the rights to operate a proven and demonstrably profitable business model. 
  • The business model needs to be replicable (i.e. capable of being taught to and operated by franchisees in defined geographic areas).
  • Your market place should be stable or growing. Future demand for the product/service can be reasonably confidently predicted.
  • Your motives for franchising should be positive and long-term (franchising is a positive strategic growth option, not a cure-all for an ailing business or a means of quick-gain.)
  • You must be able to build good working relationships with franchisees and support them in running their businesses successfully.                                                                              

These are just some of the ground rules and there’s more to look at than can be covered here.  But if you do it right, franchising can offer very worthwhile rewards.

The Benefits of Franchising

The precise benefits of franchising a business depend very much on the business and the circumstances. Generally speaking…

  • The business can expand with less capital (and therefore more quickly) than by opening company-owned ‘branches’, since the start-up costs of opening in each new ‘branch’ are met by the franchisees.
  • Franchised branches generally perform better than company-owned ones because franchisees, have vested interest in the business and are more committed to its success than employed branch managers.
  • Branches that are geographically remote from head office are easier to control when franchised, again because of the vested interest of the franchisee in the success of ‘their’ branch.
  • Via the franchise agreement the franchisor can exercise a much higher degree of control over franchisees’ activities locally than with, say, distributors or agents.
  • The day-to-day running of the individual branches (local operations, payroll, staff management, admin, book-keeping, etc.) is the responsibility of the franchisees, and therefore...
  • The resources needed to build and support a franchise operation are generally less than a company-owned network.

How to Proceed

Franchising a business is a specialised field with many potential pitfalls for the unwary. There are various sources of advice and professional help, but perhaps the best advice for businesses that wish to take a closer look at franchising is to seek professional advice from an experienced franchise consultant.

Article by Stewart Booth of Stewart Booth Consulting.

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