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Can You Use Business Franchising?

By: Garry Crystal - Updated: 11 Oct 2012 | comments*Discuss
Franchise Franchising Business Profits

There are a number of different factors to be considered before you can determine whether or not you can use business franchising. Setting up a franchise can bring large financial rewards and can be a method of low cost company expansion.

What Is A Franchise?

Franchising is a method of expanding a business by allowing others to set up and sell products or offer services on behalf of the franchisor. Basically a company will replicate their business model and allow others, for a financial stake, to run the replica company. By setting up a franchise the company does not have to spend a large amount of its capital on expansion. This is an excellent expansion method if the company brand is a strong seller.

Benefits Of A Franchise

There are benefits for both the franchisor and the franchisee; the franchisee is the person who wants to buy into the company. For the franchisee it is an excellent way to buy into a successful company without the pain of setting up their own company. For the franchisor the benefits will include:
  • Dedicated employees who have invested some of their own money
  • More commitment from franchisees who have invested some of their own money
  • Saves on capital outlay as the franchisee will provide a financial investment to cover set-up costs
  • Will allow a company to reach a wider consumer base
  • Franchises can grow quickly, and the more franchises the more profits for the franchising company
  • Can help enhance a company’s reputation and brand awareness
  • National growth can be achieved in a relatively short time if the scheme proves to be successful

Keeping It Simple

If franchising is an option then it is important to have a simple plan that is based on a company’s original business plan. The plan needs to ensure that the company can be easily replicated on a smaller scale. The best scenario should be that this form of expansion becomes a self-funding enterprise. All of the initial costs involved in setting up the franchise should be recouped from the franchisee’s investment fees. Profits should then come from the franchisee’s trading, and these profits will be how the franchisor makes money.

National Franchise

If the initial franchise is a success then there should be no reason why expansion cannot happen on a national scale. Expansion will lead to a larger share in the market and boost a company’s brand. There will of course be an amount of support needed from the franchisor to the franchisees. A company’s reputation can be damaged if customer service levels are not up to standard at just one franchise. Agreements on issues such as standards of service must be included in the franchise agreement.

More Franchises More Profits

It’s a simple scenario that the more franchises there are the more profits will return to the franchisor. In addition to profits there will also be benefits to capital investment. Another excellent benefit is that there are no salaried employees to be paid. Franchisees are basically their own bosses and usually have a higher level of commitment than salaried employees. Franchisees will put in the extra work because they have invested an amount of their own money.

Statistics have shown that it is a lot easier to set up a franchise than to actually start a company from scratch. There is also less chance of a franchise failing than there is with most start-up businesses. The franchisee is setting up with help from the franchisor and the franchisor has a new source of income and a self-funding expansion method. In most cases it is a win-win situation for both the franchisee and the franchising company.

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