Having gone through the whole business planning process and starting up your own business, if it proves to be very successful, then you may consider branching out to serve a larger consumer base. This article will hopefully help you to see that if you have a highly successful business, instead of you expanding the business by opening new stores yourself, you can expand your business by simply franchising it.
By using your original business plan as a template, instead of setting up and running new outlets yourself, you could sell on this original business template onto other businesses that will start up using your business plan and startegies.
Generally there are 4 different options for you when it comes to franchising, there is the business format franchising, selling a license, using an agent or setting up a distribution agreement.
The main way that franchises are formed is by a business format franchise. In this arrangement you, the original business, will put together a complete business package. This not only deals with marketing, product development and sales, but also outlining the process by which the business can be run.This format is then licensed to franchisees who run their own businesses, but use your business plan template and trade under your name.
The other ways of arrangements for franchising are:
- Selling a licence, whereby you allow others to manufacture and sell your goods and services without explicitly telling them how the business should be run
- Use of an agent, who will sell your goods and services on your behalf
- Setting up a distribution agreement, where you sell onto a company who then will sell onto their customers.
Now you know what franchising is and how you could possibly franchise your business, the next question is, “would it be beneficial for my business if I franchise it?”. If you decided to grow your business on your own it can be expensive and hard for you to do so. This is because as a business grows, it requires more capital to finance any new stores you decide to open. Not only this, but managing more businesses can become harder with more stores that you open. Franchising helps to alleviate these 2 fundamental issues as each business that uses your business template, will be personally responsible for their own finances. The only financial aspect that you will be involved in will be the collecting of fees from the franchisers. Not only this, but a franchiser will have to manage their own business which will reduce any management demands placed on yourself if you were to expand your business.
There is a downside to franchising in that it can be rather expensive as you will have to invest in developing and marketing the franchise. You will also have to regulate the franchises in what they can or can’t do. If you get your franchise wrong, it could potentially damage your reputation, hurt all your franchisees, and most importantly, damage your brand image.