While business owners are always confronted with the options of whether to expand their businesses through franchising or through own stores, we help them analyze and take a very careful call on the future of their businesses. A quick snapshot on why you must choose franchising over owned units expansion is given below, however we would like to discuss in detailed your present business and give you our customized expert opinion on the advantages and disadvantages of franchising your business.
Spread the business across different geographies
Franchising often enables companies with one or a few locations to quickly establish a national presence within a few years, achieving a rate of network growth, which would be inconceivable through company-funded development. The resources you will need to contribute to the opening of a franchised outlet are far less than if you were opening a company-owned store – the franchisee funds the premises lease acquisition and interiors, recruits and trains the staff and implements the local marketing campaign.
This enables you to develop a compact management base focused on assisting multiple franchisees to launch their business simultaneously, rather than methodically opening store after store, and sourcing new startup capital for each. This ensures that while you concentrate on the back end to support the growth of the business as the franchisor, your franchisee is engaged with the consumer and servicing them, defining clearly 2 different ends of business being done by specialized people meant to do the same.
By granting a franchise license you are placing your franchise under the ownership of an individual with specialist local market knowledge who is in essence his or her own boss. Their earnings depend entirely upon the success of their own endeavors, as opposed to a salaried manager whose earnings (leaving the bonuses besides) are unrelated to their performance. Also, the Franchise Agreement always ensures the franchisee from leaving and using your business concept and systems to set up in competition for a significant period of time, whereas a staff member is under no such restriction and can always very comfortable move on to competition. That apart, the biggest gainer is the entrepreneurial management that takes ownership of the franchise and provides a edge to the services being offered which when used effectively does wonders to the business.
Ongoing Revenues & Return On Investment
Franchisees pay an initial investment to purchase a franchise, most of which will be to cover the costs involved in franchisee recruitment, training and launch support. Your real return would be the ongoing royalty or your share of profit in the cost of product or service sold, which is a percentage of the franchisee’s turnover paid to cover the costs of ongoing support, product research and development, national marketing campaigns, plus to provide a fair reward for the use of your intellectual property and ongoing efforts. Because there is less capital employed, your profits are generated on a much lower capital investment. 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.
By taking the franchise route you cut overheads and, unencumbered by staffing and administration issues, can focus more time on developing the business. By speeding up expansion your business network achieves higher economies of scale earlier, stronger brand awareness, is much sooner able to challenge for national contracts and, in the case of a fledgling market or economic down turn, is in a much better position to capture early market leadership and establish a dominant position over its competitors.
There are several other factors that we consider while helping our clients understand the best way forward and bring to the table what franchising could do to their business and if they are contemplating choosing either of the options to expand, they become clearer before they take the next leap to move their businesses to the next orbit.