September 13, 2015
The practice of business franchising has the potential to rapidly grow your business online using a cost-effective and simple system. It involves the leasing of a business model and brand to be faithfully replicated by franchisees. As an alternative to creating ‘chain stores’, the franchisor passes much of the financial risk of business expansion onto their franchisees, whose investment guarantees a level of loyalty and motivation that is rarely found in regular employees. The list of top 500 franchises in Europe, dominated by familiar names such as McDonalds, 7-Eleven, and Subway, proves the potential success of such a venture. There are some key features which make this such an attractive route for business growth.
Franchising is a relatively low-cost method of expanding a business. Not only does the franchisee make an initial payment to become part of your business, but they also continue to pay you, as their parent-business, a percentage of their revenue. The majority of the financial risk lies in the hands of the franchisee who also covers the cost of setting up their business unit and training their own staff.
The expansion that the franchise provides also allows more for more economical purchase of materials and marketing services in the future as larger businesses are often much more successful at negotiating favourable terms with suppliers.
A Simpler Management System
As the franchisee remains responsible for the day-to-day running of their unit/s, the parent business has no need to greatly expand a central organizing body or provide any detailed management. The franchisee, unlike employees, can logically be relied upon to manage their investment. Of course, this logic is not foolproof and careful selection of franchisee is strongly advised.
HSBC Business Advisors emphasize the speed at which your business could develop through franchising. The structure of a franchise allows many units to be developed without creating a large central organizing body.
If the franchisor is prepared to make a substantial investment in marketing nationwide the business could be significantly expanded with branches across the country much faster than if the network remained company-run.
The franchisee will usually have extensive knowledge of the area in which they are setting up their unit and which marketing techniques are likely to be successful. This can prove invaluable in achieving better market penetration for that particular unit, and in turn creating greater business awareness for the whole brand.
If you feel your business has potential beyond the borders of the UK, then this local knowledge becomes even more important when expanding your business into a different culture. Master Franchising is a system which allows a franchise to be replicated overseas and adapted to the local market and legal requirements.
The International Franchise Association’s summary of the benefits for franchisees going into business states that, ‘owning a franchise allows you to go into business for yourself, but not by yourself.’ The franchisor can expect a large amount of loyalty from their franchisees; your brand is their brand. The investment they have made and the potential benefits they could receive results in commitment unlikely to be found in employees. The scope for success or failure is much greater for the franchisee, as are the potential rewards or losses.
A Word of Caution…
The franchise relies on the replication of an already successful business model. As your franchisees are to be trusted with your brand, they must only be appointed after careful consideration. The success of the franchise depends on the success of the franchisee.
Successfully expanding a business through franchising brings the promises of financial rewards, greater brand awareness and efficient group advertising and purchasing. In comparison to a company-run business growth plan the financial risks are reduced alongside the potential for a reduced time-scale. Franchising and business growth go hand-in-hand.
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