12 Reasons to franchise your business
We often write a lot of material on guidance to already established franchises, but this article explains to those, who have a business and are looking into expanding, the benefits of the franchise route. Jamie Brown gives you a dozen reasons to franchise your business.
Almost all of the most successful businesses at one time began with just one person and an idea. These advanced thinkers developed their ideas into a refined business with excellent products and services. The inevitable next step is to expand. Growth, when you’re a single operator, can be very difficult. That’s where the franchising model comes in. Franchising allows you to be able to license your great idea out to other people who believe in what your business provides, offers and stands for. This is also a great way of rapidly spreading your business idea around the country or even the world.
1) Faster national expansion Once a business has been established as a franchise, the network has the potential to grow quickly with the franchise owners’ capital funding the new outlets. The overheads and expenses associated with opening company-owned outlets are replaced by the franchise recruitment, training and launch assistance, at a lower cost.
2) Better-motivated operators By choosing to franchise, the franchisor is able to benefit from the franchise owners’ ambition, energy and commitment to the business and its standards. Franchise owners are usually more motivated and effective than salaried managers, because they have a vested interest in the business.
3) Get the edge on your competition Customers are often attracted to a new idea and will stay with a brand if the product or service is as good as, or better than, that supplied by their previous provider. By quickly expanding into new geographical areas, the business is well placed, providing the product or service is good enough, to take competitors’ customers and keep them.
4) Effective quality controls Franchising is all about following a proven system. As all of the franchise owners are following the same system, customers throughout the network should receive the same high quality service, irrespective of location. That way the customers will always know what to expect from the brand and that encourages loyalty.
5) Rationalises management Running a franchise system requires less management than a company-owned chain of outlets, since hiring, training, motivating and retaining competent staff are all functions handled by the franchise owner, not the franchisor. This means the franchisor can get a better edge on competitors unable to operate with a compact management database because they need to spend more on this element.
6) Knowledge from franchise owners Franchise owners may already possess local business knowledge and, by using their expertise, provide the franchisor with a clearer insight into the local market. This practice is particularly useful when expanding into foreign markets.
7) Group purchasing strength Centralised buying enables the entire network to benefit from volume discounts that an independent trader is unable to obtain. This means franchised outlets are in a better position to offer competitive prices, which will help to increase market share.
8) Ease in securing locations As a franchise system grows, the brand develops an image of importance and success. Landlords prefer to rent commercial real estate to well-known, successful franchise brands than to small independent businesses.
9) Dedicated distribution network Where a business is a manufacturer or service provider, establishing its sales function as a franchise operation frees them up to provide a distribution network entirely focused on the supply of the products or services to customers.
10) Marketing power As the network develops, all of the outlets can benefit from the group’s marketing initiatives, at both a regional and national level. A positive network spirit will encourage franchise owners to help each other through referrals as customers become increasingly familiar with the brand as it expands on a national level.
11) Improved profitability Return on investment is likely to be higher for a business that has opted to expand through franchising. This is because less capital is employed and the franchisor’s profits are generated on a much lower capital investment. So, although the revenue received from franchised units is logically less than that from 100 per cent company-owned outlets, a higher percentage of the revenue is actual profit.
12) Long-term earnings Following the successful creation of a franchise business, there is potential for substantial earnings from an appropriate exit strategy.