Any business that has a successful well-recognized system is eligible for franchise development. Franchising can be a good way to protect your products and services concepts, while growing your business. Franchise development might even be a good way of protection from copy-cats. Your copyrights and trademarks are safer this way.
Franchising is the right to use a company’s business model, along with its know-how and brand, for a determined period of time. For the franchisor this is a good way to build and grow “chain-stores”, without the high cost of a big investment. Also, the franchisee has many advantages. He or she receives the know-how of the “mother company”, and has a direct stake in the business.
Some of the largest franchised chains in the world are the following: Subway, McDonald’s, 7-Eleven, Dunkin’ Donuts, etc.
How to franchise your business?
- Have great insights of your business. You must know your company and your products, inside and out, because the directions you give to your franchisee must be clear and precise.
- Read all about the legal issues. If the legal matter is not of your competence, then you might consider seeking out professional help. The International Franchise Association is a great resource when it comes to the legal issues surrounding franchise development services.
- Be aware of the direction you want your business to go. You must know how you want to grow your company. You can develop your business by just adding a few new outlets, or you might want to gain international coverage. Either way, make sure that the way you choose to expand is the natural organic growth rate for your business.
- Carefully select your franchisees. Don’t give your brand to anyone that comes and says they want to open a franchise with your company’s name. They are going to represent your brand, and you do not want to choose the wrong people to do that. They also have to understand, like, and be compatible with your brand’s message.
- Avoid conflicts by setting the right limits and restrictions. Franchisees should have a certain amount of freedom, because they are small business owner. You have to give them space and rely on their judgements as they discover new business opportunities. You just make sure they stick with your brand’s identity.
- Offer support to your franchisees. Give me insights on how to recruit and train new employees. If you have a good relation with a franchisee, you can even offer him/her advice on best ways to communicate and promote the brand on the market, on how to attract potential clients. Give your franchisees marketing materials and documented systems.
What costs are involved?
- Capital investment. The franchisee is responsible for funding the fitting out of the franchise, taking into consideration the franchisor’s requirements.
- The franchise fee. This is the upfront fee that the franchisee pays when purchasing the franchise. Estimations show that the average initial fee is around 21,000 dollars. However, this fee could range from 1,500 dollars to 437,000 dollars.
- Working capital. You will need enough capital to keep the business up and running until you begin to make money with the franchise. The main benefit is that you have your franchisor’s experience and knowledge, and you could ask him to give you some financial and business advice.
- On-going fees. This could be either a fixed fee (you pay the franchisor a set amount of money each month) or a percentage fee (the fee, in this case, is based on a percentage of the sales you receive from the franchise).
Other costs you might pay attention to are: advertising fees, franchise renewal fee, professional services, and insurance.
Pros and cons of a franchising development:
- Low-cost market expansion
- Royalties income
- Franchisee has the management responsibility
- The franchisor keeps the control of the system
- The franchisor supports the franchisee, and the franchisee helps the franchisor improve the system
- Greater advertising power and visibility
- At first, profits can be low
- If the franchise fails in the beginning, could mean a great loss for the franchisor
- Sometimes, franchise development implies high legal expenses
Why franchising? Franchise development has many attractive advantages. It keeps the franchisor’s identity and brand, providing greater awareness and visibility. Also, the franchisee receives the know-how and support from the franchisor in order for the expansion to work well and succeed. However, franchising is good only for those confident, passionate business owners, who know their business in its every aspect.