If you’ve dreamed of growing your business exponentially within the next five-to-ten years, you may have asked yourself, “should I franchise my business?” Franchising is a great strategy that businesses may want to consider if they want to outlive their competitors.
What is franchising?
Franchising is a form of capital acquisition that allows entrepreneurs to expand their businesses without the risk of debt, or investing their own capital. Franchise owners receive a (small) percentage of royalties from a franchisee’s sales, creating a steady flow of capital into the business. As always, there are pros and cons while considering whether or not to franchise a business.
What are the benefits of franchising?
Franchising eliminates some of the risk in expanding your business. It isn’t foolproof, of course, but franchising gives your company a way to grow by using another entrepreneur’s capital without falling into debt. The franchisee is responsible for the entity, ideally only sharing the “brand.” The brand name recognition, as well as national and local advertising revenue, for both entities, benefits the franchisor and the franchisee as any promotion from one, could aid in the other’s success.
Another great reason to franchise your business is that the franchisee will be behind it 100%. They have invested their livelihood, time and money into their (and your) business creating a long-term commitment, which is good for you. This also helps reduce the chance of failure, as the franchisee will most likely have better quality management, operational quality and innovation tactics because of their dedication. The franchisee will want to cut costs, innovate new ways to generate more revenue, and work closely with the business fostering a potentially successful environment.
What are the cons to starting a franchise?
As with anything in life, there are cons to owning a franchise. Fortunately, most of the cons of franchising are on the end of the franchisee, and not the franchisor. The upfront investment to franchise your business is generally a hefty fee. As a franchisor, there is almost no control over management tactics because the people you hire aren’t technically your employees, but the employees of your franchise. There may also be push back from franchisees when making innovative changes within the business model. Franchisors must negotiate with franchisees to get a product, idea, or price change in each of its businesses, which may not always work out. Both franchisor and franchisee must work together in making profits to be successful for these tactics to work.
your business is not an end-all-be-all, or a silver bullet for your business. It is important to consider the business model that you’re working within, and where you see the business growing in the future. Making the decision to franchise your business is not an easy one, and if the positives outweigh the negatives of franchising, it may be time to speak to an expert. The franchise consultants at Franchise Marketing Systems are here to help you navigate your options with you.