There are many reasons to franchise your business and more and more businesses are choosing a franchise strategy for growth.
Here are just some of the reasons they choose to do so:
When you franchise your business, your franchisees put in the money required to open new trading units.
You can achieve a high rate of growth using franchising. This is due to a combination of factors including the capital being introduced by franchisees, the fact that you are outsourcing management of new unit openings to your franchisees and that you can open multiple new units at the same time. The point is, whether you are in a competitive new market where those that achieve an early land grab will be the winners, or you just want to get ahead of your competitors, franchising offers you a realistic, low cost way to do it.
Increase the Value of Your Business
Franchising can have an immediate impact on the value of your business and not just because you have increased revenue and profits. Once you have demonstrated with your first few franchisees that your business model can be successfully duplicated, you have a genuine growth story to tell with big upside potential for any would-be investor.
This reason is easy to understand – if the person running one of your business units has invested their own money into it, they are motivated to perform!
You can gain competitive advantage by tapping into the local knowledge of your franchisees. Forget expensive market research and learning about the local market as you go – franchisees know the local market, the people, the places and have networks already in place.
An often underestimated reason for franchising is the power of the franchisee marketing fund. Imagine your business has national coverage – how much would you be spending on marketing? Same national coverage, but this time it's a franchised network and your franchisees are paying for the marketing – what has that done for your bottom line?
Group Buying Strength
Again, an easy one to get – as your network rapidly grows, your buying power grows with it, meaning you can negotiate harder with suppliers and reduce costs.
De-Risking Your Business
This is interesting and something funds and private equity, particularly funds in the USA that are buying franchise networks, have cottoned on to. If you wholly own a multi site business and due to external factors such as a downturn in the economy, revenues fall, some of those trading units may become loss making and
even threaten the survival of your business.
On the other hand, if that same network is franchised, you are cushioned from the effects of the downturn. Your revenue is typically based on the revenue, not profit, of your franchisees. So even if you have some loss making franchisees, you can still be generating revenue and profits. Which by the way, is why so few franchise systems fail during recessions in comparison to wholly owned networks.
Why develop a franchise? Well, above we list some of the common attractions of developing a franchise, but in truth, different businesses do it for different reasons. Not surprisingly, for smaller businesses without access to significant funding, choosing to set up a franchise as a model for expansion is largely about financing the growth. However, interestingly there have been many examples where having achieved rapid, low cost growth, companies have become so enamoured of the benefits of franchising that they continue to use it. McDonald’s and Subway are obvious high profile examples.
In today’s fast moving business environment, management are sometimes faced with the question of how can I grow my business the quickest way. The trend set by software companies to give away their product in a land grab for market share has permeated many areas of business. Deciding to create a franchise is often seen by all sorts of business as the way to achieve this and creating a franchise just to speed growth has become a popular option. It is far easier to manage a number of franchisees all opening new sites at the same time than to do it yourself!
Whatever your reasons for wanting to develop a franchise, our brand of franchise consultancy is all about practical support and guidance through the process of how to develop a franchise that is right for your business. How to set up a franchise? The first step is to contact us today for a free, no obligation chat to one of our experienced franchise consultants.