The FINANCIAL - Is franchising the right strategy for your business?

Is franchising the right strategy for your business?

Is franchising the right strategy for your business?

Franchising has been a popular business growth strategy for several decades now. When a franchise plan is executed well, it has the potential to grow a business very quickly and efficiently. But like any business strategy, the success of a franchising venture will come down to its execution.

Before you commit time and resources to a franchising plan, you need to be confident that you understand the drawbacks and benefits of franchising your business, as well as the unique challenges that franchisors face. Only then can you make an informed decision as to whether it's the right strategy for you. Rushing into the process while underprepared is bound to end in disaster; it has the potential to sink an otherwise healthy business, whether they are customer facing or work from home franchises.

Below is everything you need to know and consider before you pull the trigger on any franchising plan. It doesn't matter how strong your core business is or how determined you are to make a success of franchising, you must be prepared to be brutally honest with yourself about whether it's a viable path for your business.

Which types of business are best for franchising?

Even a cursory glance through any franchise directory online will reveal the wide range of businesses and industries that have embraced the franchising model in recent years. Most types of business can be franchised; there are accountancy franchises, pet franchises, van based franchises, plumbing franchises, care franchises and fitness franchises, to name just a few. However, restaurants have always been the most commonly franchised businesses, and this trend is showing no signs of slowing.

How to tell if your business is ready for franchising

There are more important considerations than the type of business you run when you're deciding whether or not to franchise. Franchises need to be built upon solid foundations. Not just financially but also in terms of branding. If you don't have a clearly-defined brand at the heart of your core business, franchising will be much more difficult.

Franchises also need to replicate the core business as closely as possible. The success of franchise businesses like McDonald's is built upon their ability to offer the same experience in every single franchise.

There's no shortage of eager entrepreneurs who view buying a franchise as a shortcut to running their own business. Selling a franchise is probably the easiest part of the process. But before you can think about selling your business concept to prospective franchisees, you need to prove that it is viable. Your core business should have multiple successive profitable years before you try to sell the concept.

What are the benefits of franchising?

The primary benefit of franchising a business is the potential growth rate. Most business owners choose to go down this route because it enables them to expand their business and grow their brand relatively easily. Opening new locations and penetrating new markets is an expensive and risky proposition. But in the case of franchise businesses, franchisees will pay a fee that covers most or all of these costs. Once new franchises open, they will start generating revenue for the franchisor. This turns a usually expensive process into a profitable one.

Franchisees will handle the day to day management of their franchise. This means they are responsible for finding and hiring staff, and dealing with the necessary admin, such as payroll. Staff are employed by the franchisee, not by the franchisor's business. As a result, the administrative burden usually associated with a business expansion is further reduced.

Because of all of the above, franchisors can use the franchise model to expand their business over a wide area quickly and efficiently. Even the best franchises and smallest franchises can expand their business empire with relatively little risk as long as they have a solid concept to sell to prospective franchisees.

What are the drawbacks of franchising?

As with any business strategy, franchising is not a magic bullet or perfect solution. When a franchising plan is executed properly, it can be hugely beneficial to a business. However, you will have to make peace with sharing the profits your franchises generate with the franchisees that run them. You will also have to relinquish some control over how each franchise is operated. The amount of control you have will depend on the terms you set out in your franchising agreement; a legal document between you and your franchisees that defines the terms of your relationship.

It's also important to be aware that if you sell a dud franchise that your franchisee has no chance of succeeding with, or if you breach the terms of your franchising agreement, you could open yourself up to an expensive lawsuit.

When franchising is used appropriately and thoughtfully, it is a powerful tool for growing a brand and rapidly expanding a business. As long as you take your time and avoid rushing into it before you're ready, franchising should be a boon for any business that embraces it. However, a lack of preparedness or an overzealous approach can both harm your core business. Make sure your business is ready before you commit to a franchising model.

Author: The FINANCIAL

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