Have you ever wondered if you could franchise your business? If this is something you are thinking about, then you firstly need to ask yourself: ‘do I really know what franchising is?’
Here is a good description of what a business franchise is to get you started:
Franchising is essentially the ‘cloning’ of a successful business concept. Under a franchise agreement, the owner, producer or distributor of a service or product (the franchisor) grants exclusive rights to an individual (a franchisee) for the local distribution and/or sale of the service or product, in return for payment and conformance to quality standards.
The common features found in most definitions of franchising are that the franchisor provides the know-how, trademarks, business support, training and development, and often trading area exclusivity to a franchisee, in return for royalties (ongoing fees), other payments or compliance to rules and standards.
So, this is the definition of a business franchise model for growing a business, but how do you know if it is really the right path for you and your business?
As well as franchising, there are many other options and alternate growth structures out there to expand a business, including organic outlet growth, investor outlet growth and agency, distributor and licensing agreements, to name just a few.
After familiarising yourself with what a business franchise actually is, the next logical step for any prospective franchisor is to start weighing up the advantages and disadvantages provided by this growth model.
To assist in this process, here are what we see as some of the main Pros and Cons of the business franchise model to consider.
Top 5 Pros
- access to external capital to fund growth
- ability to grow a franchise network quickly (expanding the business without having to do it all yourself)
- growth driven by committed, invested and profit-driven franchisees
- sharing of business risk with franchisees
- additional source of cash flow from franchise fees, royalties, levies etc (these can be used for further investment and research and development of the franchise business).
Top 5 Cons
- the significant upfront cost, and time, required to establish the necessary franchise systems and infrastructure, including a pilot operation
- the difficulty in finding suitable quality franchisees to grow the business
- the ongoing costs of training, supporting and managing franchisees
- handing over control and being reliant on others for the success of the franchise business
- potential legal risks and disputes from franchisees
This is in no way designed to be an exhaustive list but rather a snapshot of the leading Pros and Cons of being a business franchise owner (as distinct from being a franchisee owner, which comes with its own unique Pros and Cons).
Knowing what a business franchise is, and beginning to weigh up its Pros and Cons as a model to grow your business, is a great starting point for anyone interested in embarking on the journey to become a business franchise owner.
Franchising is a long and challenging journey and the more you can think, ask, question, and educate yourself on what you are actually getting into, the better prepared you will be for what lies ahead.
Want to learn more?
FranchiseED has specifically developed the ‘How to Franchise’ eClasses so that prospective franchisors can learn exactly what is involved in establishing a business franchise, if they are ready and if it is the right path for them before they make the leap.
Find out more here. It’s online and available 24/7.