Franchising your business

The benefits of franchising as a means of expanding a business are twofold. One, it involves low capital investment by the franchisor as the capital used to expand the network comes from franchisees. Two, by franchising the business, the franchisor places the expansion of his/her business in the hands of people who are motivated to make it work. Having invested what in many cases are their life savings in a franchise, franchisees will strive to make the business successful. Their livelihood depends on it.



By using the franchisees' capital, the franchisor is able to establish a large number of outlets in a short period of time. Rapid expansion can be achieved without incurring the overheads and costs associated with opening company-owned outlets. This brings benefit to both the franchisor and franchisee as it helps build consumer recognition quickly and establish the franchise.



The cost of expansion for the franchisor is usually limited to the cost of franchisee recruitment, training and assistance prior to opening. Franchisees invest their own equity and borrowed funds in premises, equipment, fixtures, furnishings, inventory and the working capital necessary to establish a franchise unit. The only cost to the franchisor is that of the overheads not met by the franchisee's initial franchise fee.



The return on investment is much higher for businesses who expand through franchising. Because there is less capital employed, the franchisor's profits are generated on a much lower capital investment. Although the revenue from franchised units is less than that received from company-owned outlets, a higher percentage of the revenue is profit.



Franchising also allows for the business to expand without spreading managerial resources across too many business units. A business owner may wish to keep his/her own operation small and tightly run. Operating more than a few outlets can drain business resources. A franchise system requires less management than a company owned chain of outlets. Hiring, training, motivating and retaining competent staff are all functions handled by the franchisee, not the franchisor.



Businesses choose franchising as a means of expanding their enterprise because of the ambition and energy of owner operators and sometimes - especially in the case of small, one-person enterprises - because the service provided by the franchise is very demanding and needs the extra attention of an owner manager. The owner manager is usually more motivated and effective than a salaried manager because he or she has a vested interest in the business.



Franchising has added attraction for expanding a business into foreign markets particularly those that are different, as most foreign markets are, to the franchisor's home market. By using indigenous franchisees, the franchisor is tapping into local business knowledge which may prove beyond his or her capability to obtain otherwise. People who know the local scene well deal with legal and cultural differences more easily than an overseas company executive would.



Whatever the advantages of expanding a business through franchising, it is not without its disadvantages. Nor is it easily done. Successful businesses with franchisable concepts have failed to successfully franchise. Companies must meet certain criteria before embarking on the franchise route. Even when they have met those criteria, prospective franchisors must be to ready to invest both money and time in the development of the franchise system. While it has its advantages, it is not a simple means to expansion.



Franchising your business - To learn more about this author, visit Diarmuid Kieran's Website.

Like this article? Share it with your friends

E-Mail | Print | More

Related Articles
I Want to Take My Business to the Next Level
	If you are currently a business owner and thinking about taking the next step, franchising your business; you may want to take a close look at franchising. Franchising can make businesses very successful. Many bus...
What is franchising? My personal definition!
	Working in the franchising community for 25 years, I have come to define the concept of franchising, based on my personal experience.
Franchising Is a Better Path to Success than Opening a StandAlone Business
	The market seems ripe for franchises to continue to grow. Here's why it's a good business move right now.
Franchising Overview
	An important step in the small business startup process is deciding whether or not to go into business at all. Each year, thousands of potential entrepreneurs are faced with this difficult decision; because of the r...
Successful Franchisee Traits
	Do you have the personal traits necessary for success in the franchising industry? You might want to make sure you can say “yes” to these questions before you invest...

---

Related Forum Posts
	Re: Re Franchise etc
	Franchising vs. Licensing?
	Great Article, chock full of info.
	Do's and Dont's of Franchising
	It's not easy
	Re: Hello from Captain Franchise
	franchising
	Re: Are Economic Recessions Good for Franchising?