Owning a successful business model brings up a thought for expanding, but how do you grow your business without spending millions? Franchising is a growth opportunity for business-owners which allows entrepreneurs to sell the rights of their establishment to another person to open another unit of the same business. In a franchise agreement, the buyer pays the business owner a percentage of the sales by operating the replica of the brand which follows the same business structure as the parent company. Both the franchisee and the franchisor benefit by this expansion as the brand builds a name for itself in another location and the sales depend on the reputation.
Why should you franchise?
Generally business owners decide to franchise their successful business model due to three main reasons:
- Lack of resources for expansion
- Lack of reliable management
- Lack of time
Being short of capital is still the biggest barrier faced by companies when they think about expanding their business to other locations. Franchising, on the other hand, allows companies to expand without the risk of debt or the cost of equity. Since franchisees provide the initial investment for opening another branch, franchising is the safest option to expand without capital. Also, the franchisee is legally responsible and accountable for the new unit, the franchisor is free of liabilities too.
Finding a dedicated manager to supervise the new branch would have been very difficult as they can leave or even worse, be hired by competitors by luring then into a higher pay. But in a franchise agreement, the franchisee can serve the purpose of being a reliable unit manager since his investment is at stake and he will do his best to make the company work.
Opening another branch of an establishment requires a lot of time. Hunting for a suitable site and negotiating the lease, all of these processes which usually takes you back in the place where you were about to start the business in the first place. Hiring and training the staff, purchasing the equipment, all this limits your dreams of expanding in a given period of time.
For companies who wish to grow against the timeline and without any risks, franchising is the best option, that’s because it is the franchisee who does the most of the growth tasks.
Is your business capable of being franchised?
Franchising is an extremely flexible option and almost any business can be franchised but it needs to fit some of the basic criteria. Here are a few characteristics which can determine if your business can be franchised:
- It needs to be reputed– your brand identity works like a charm here. If your parent branch has earned a name for itself, the other branches will surely follow.
- It needs to be unique– Your business needs to be different from that of your competitors, in this way it is more likely to succeed.
- It needs to have a fixed system– Your establishment needs to have a system that can be passed on and taught with all the processes documented.
- It should be capable of generating a decent income- profitability is one essential factor when you are looking to franchise your business.