Franchising means that instead of adding a new company-owned location or business unit, you allow someone else to pay for the rights to use your name to develop a new location. If someone is interested in franchising your business model, you have achieved some success as a small-business owner. But you still should weigh the benefits of franchising against those of expanding company operations on your own.
A major benefit of company-owned expansion is control. You have a lot more control over your operations if you own them. You also have more say in the location of the new business unit or store and how it is marketed to a new customer base. This allows more consistency in operations and ensures that business decisions align with your goals and vision. If control is important to you, it is typically better to keep company expansion in your hands.
When you franchise, you can place controls or limits on franchisees as part of the agreement. This is fairly common. Many franchisees agree to abide by store setup and operational and buying procedures. However, you won’t have day-to-day oversight of the franchised business. If poorly operated, a franchised location can damage the entire brand. Franchisees could also alienate your vendors, and their illegal or unethical activities can affect the entire operation.
Speed of Growth
Franchising is usually a faster way for a small business to expand. Typical small-business owners don’t have the capital to aggressively add new retail locations. By allowing other motivated owners to buy into the company, you can add more locations much faster. Each business unit can indirectly benefit from the synergy of the company expansion as word of mouth spreads among customers.
Franchising also enables you to spread the investment risk of expansion and to hold onto your capital. Typically, franchise owners receive upfront fees or ongoing licensing fees from franchisees. This essentially means you earn a lump sum or revenue stream without taking on the investment risk in the new operation. Some franchisors also include advertising fees in the agreement to have each franchisee contribute to the ongoing marketing efforts of the parent business.
By Neil Kokemuller, Demand Media http://yourbusiness.azcentral.com