Why is it a good idea to franchise your business? How popular is franchising? What are some valid reasons to franchise? In this article, we will consider these questions and more as we learn why franchising is a good plan for you. Franchising is being used by more businesses today than it ever has. According to ‘Francorp’, almost any product or idea that has been created can now be distributed through franchising. For successful business owners who are looking to expand their businesses, franchising can be the route to go for growth. According to ‘FDS Franchising’, there are over fifteen hundred companies in the UK alone which are currently using franchising as a way to produce this growth. Let’s explore why your business could benefit from franchising as well.
Who Should Franchise?
Whether your business idea is brand new, or you are already a successful inventor who needs to grow his or her business, you may not have the capitol to expand as you would like. You may be asking yourself whether you can afford to grow your business slowly, and feel that trying to expand quickly could cost you everything. Franchising is the way the modern business person produces growth in their business. It is often cheaper to franchise a business than it is to establish even the smallest new outlet. Once the initial cost of the franchise operation has been paid, the rest of the risks and costs are taken on by the franchisees. Also, the franchisor is normally paid an upfront fee or royalties by the franchisee. This makes franchising a good plan for making quick money with low risks. As ‘Francorp’ explains, there are several scenarios which make franchising a great idea for raising the capitol you need to grow quickly. Among those scenarios is the following:
- If you and your business does not have the time, people, or cash to create a system for growth within your company.
- If you believe that your company will grow faster than most programs which are owned by large companies.
- If you already have a distribution system that you need to supplement.
- If you need your management to be more motivated, and tighter control over the business to improve the systems.
What is Franchising?
As explained by ‘FDS Franchise’, many different pyramid schemes, licenses, and business opportunities have used the term “franchising” so many times that the true definition has become a bit blurred. Because of this fact, the franchise industry proper adopted a new term, “Business Format Franchising,” which represents the different true franchises which have been properly structured, from the other opportunities which are in the market today. This term simple means the granting of a license from the franchisor (you) to the franchisee. This grant would allow the franchisee to use the trade mark or name of the franchisor. They may also use any other part of the company package. (Think, for example, of popular restaurants which are actually owned by different people, and thus ran a bit differently in each location yet keep the same name, logo, etc. The restaurant would be the franchisor and the actual owner of each individual location would be the franchisees.)
- Growth of Your Network- Very often companies which only have one or two locations can actually expand very quickly through franchising. Within just a few years, a smaller business can actually become nationally known through the use of franchising. This would not be possible with development which is funded strictly through the company. You will need far less resources in order to open a franchise location than if you owned a separate place which was owned by the company. In these cases, the franchised business will grow much faster than a lone company would. The franchisee is actually responsible for the funds to lease the location, recruiting any needed employees, training those employees, and also running the marketing campaign on a local basis. With this method, you could actually open several locations at once, instead of one at a time, taking time to get each one started and on it’s feet.
- Local Management With Motivation- When you grant a franchising to an individual, you are actually placing that location in the ownership of someone who is familiar with the local market and can become their own employer..so to speak. How much their salary is will depend on how hard they work to be a success. This is much more motivating than simply hiring a manager to run a new location which you have opened yourself. In that case, the manager may or may not be as motivated, since their salary does not directly rely on their work ethics, performance, etc. Included in the contract of a franchise agreement is a clause which prevents any franchisee from leaving your location and using your business ideas elsewhere. A simple manager or employee would not be under the same restrictions.
- Fair Capitol Return- As previously stated, the initial cost of leasing, hiring, setting up, purchasing, and launching a franchise lies with the franchisee. You will have the true financial incentive of the ongoing Management Service Fee, which means that you will receive a percentage of every dime that the franchisee makes, even though they ate those initial costs. That fee is paid to cover the costs of your ongoing support, as well as any research and development which you continue on your product. It also covers any national marketing campaigns (local ones are covered by the franchisee.) You also receive compensation for the use of your intellectual property. As ‘FDS Franchise’ points out, since there is less capital employed, your profits will be generated on a lower capital investment. Even though the revenue which is received from franchised locations is normally less than it would be from those that are owned by the company, a higher percentage of the revenue is pure profit.
In short, it takes successful franchises for the process to be a success. When it is structured in a proper manner, a franchise agreement can help small companies to compete with the larger ones. It can also benefit larger companies by placing very motivated managers in new locations with barely any overhead costs. With no worries of recruiting new employees, training, localised marketing, leasing, and such, you are free to focus on how you can improve your product, and develop your business. In today’s struggling marketing, franchising is the way to go for expanding your company with little risks.
Angela Kaye Mason is an online researcher, writer, and contributor at entrepreneurweek.com blog network. She may be reached at firstname.lastname@example.org. Follow Angela on Twitter. Find her on Facebook .
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