Are you thinking of franchising your corporation? If that is the case, it is important to consider the advantages and limitations of franchising your company. Franchising is a legal and economic model for multi-unit growth. Compared to organic growth, where you participate in and open several stores yourself, Franchising helps you to employ someone – your prospective franchisees – who will invest their money, resources and management commitment to start up new branches using your products, processes and brands. Here are some of the biggest advantages of franchising. But before we start with the advantages, let us clarify to you what exactly franchising your business means?
WHAT DOES FRANCHISING YOUR BUSINESS MEANS?
Franchising is a lawful and market framework that will help you boost your business growth. When you franchise your company, you can produce the legal documentation, records and operating requirements required to comply with the franchise regulations and offer trademarks to entities who, as franchisees, extend the scope of your brand by spending their own money in the growth, launching and management of new outlets.
As a franchisor, you will give franchisees the contractual right to create their own franchised outlets using your brands, business processes, working practises, vendors, preparation and continuing assistance that you will offer to them. In exchange, franchisees can present you with fresh and recurring revenues, including franchise fees, dividends, brand creation fees and other associated supply chain profits. When done right, franchising produces a win-win partnership.
Overall, it’s a great way to enhance your business growth and reach new heights of success. The key benefits for most businesses joining the franchise are profit, the pace of expansion, inspired management and risk depletion, but there are many others too though. So, let’s have a look at them as well.
ADVANTAGES OF FRANCHISING YOUR BUSINESS:
- FINANCIAL GROWTH:
The most major challenge to growth encountered by today’s small firms is the lack of availability to finance. But before the credit tightening of 2008-2009 and the “new standard” that followed, entrepreneurs frequently noticed that their growth expectations surpassed their capacity to finance them. Franchising, as an additional method of capital acquisition, provides some benefits. The main explanation of why most entrepreneurs switch to franchising is that it helps them to grow without any of the risks of lending or the expense of equity. First, as the franchisor offers all the funding necessary to open and run a unit, it encourages businesses to expand using the money of others. By using capital from other individuals, the franchisor will expand relatively unhindered by debt.
Moreover, when the franchisor, not the franchisor signs a mortgage and enters into different arrangements, franchising makes it easier to develop with practically no contingent liabilities and thereby dramatically decreases the exposure to the franchisor. This implies that, as a franchisor, not only do you need much less money to grow, but the threat is pretty much restricted to the capital you spend in growing your franchise, a sum that is often less than the price of establishing an additional company-owned store. This is one of the most motivating advantages of franchising.
- MOTIVATED ADMINISTRATION:
Another stumbling block faced by many founders who wish to grow is to find and maintain successful unit managers. Far too often, a company owner spends years searching for and preparing a new boss, either to see them leave or, even worse, to be hired by a rival. And employed supervisors are just workers who may or may not have a sincere dedication to their jobs, which makes the virtual control of their work a difficulty. But franchising helps the owner of the company to solve these issues by replacing the owner with the boss. No one is more driven than someone who has invested financially in the progress of the company. Your franchisor will be the founder with his savings invested in the company. And the compensation would come primarily in the form of income.
A combination of these aspects will result in some positive outcomes for example:
- Long term dedication. Since the franchisee is involved, it’s going to be hard for him/her to walk away from the company.
- Good control of quality. As a long-term “boss,” the franchisee will grow and learn about your company and is more likely to acquire an operational understanding of your business, making it a stronger operator as he invests years, maybe decades, of his professional life.
- Improved efficiency of service. Although there is no clear research that quantifies this variable, franchising operators generally take pride in ownership very seriously. They’re going to keep their facilities cleaner and educate their staff better because they own, not just run, the company.
- Innovation and creativity. Since they have an interest in the future of their company, franchisees are constantly searching for chances to develop their business, a characteristic that other managers do not share.
- Usually, franchisees normally out-manage owners. Franchisees can also have a sharper perspective on the expensive end of the partition and on payroll rates, theft and all other line-item expenditures that could be minimised. They outperform managers as well. Over the decades, both research and observational evidence have shown that franchisees can outperform managers when it comes to producing sales. Derived from the experience, this increase in results can be substantial in the region of 10 to 30 per cent.
So, these few positive outcomes can make a significant change in how your business progresses and expand and also reach new progress milestones.
- PACE OF PROGRESS AND DEVELOPMENTS:
Any businessman you have ever met who has created something genuinely creative has the same terrible dream: someone else is going to beat them to the market with their idea. And these concerns are also founded on truth.
The concern is that it requires time to open a single unit. For certain entrepreneurs, franchising may be the best way to ensure that they hold a stance of operational excellence before rivals invade their territory since most of these activities are carried out by the franchisor. Franchising not only helps the franchisor to maximise financial leverage, but it also enables the franchiser to leverage human capital. Franchising makes it easier for businesses to deal with even bigger companies.
- EASY SUPERVISION AND MONITORING WITH STAFF LEVERAGE:
From a project management perspective, franchising often gives other benefits. For one instance, the franchisor is not accountable for the day-to-day operation of the actual franchise units. At the micro stage, this indicates that if a shift boss or a staff member makes a sick call in the middle of the night, they’ll call the franchisee—not you—to let everyone know. And it is the task of the franchisor to locate a substitute or to handle their shift. And whether they want to offer rates that are not following the marketplace, hire their friends and family, or waste resources on wasteful or frivolous transactions, you or the financial returns won’t be impacted. By removing these duties, franchising helps you to focus your energies on enhancing the overall image.
Franchising helps franchisors to deal better in a much leaner company. Since franchisors can perform many of the duties otherwise handled by the corporate home office, franchisors will exploit these measures to minimise total staffing.
- SIGNIFICANT RISE IN PROFITS:
The above-mentioned personnel leverage and convenience of supervision enable franchise companies to work in a highly efficient manner. Since franchisees can rely on their franchisees to handle site acquisition, lease arrangements, local promotions, recruiting, preparation, billing, payroll, and other human resources duties (just to mention a few), the franchisees’ organisation is usually much leaner (and also leverages the organisation that is already in the position to sustain company operations). The end consequence, then, is that a franchise company will be more efficient.
Regrettably, this statement is impossible to quantify or confirm. We know that: analysis carried out over the last 10 years reveals that the top quartile franchisors put an aggregate of 40 and 45.6 per cent on the result in 2001 and 2002.
- ENTRY IN SECONDARY AND TERTIARY INDUSTRIES:
The willingness of franchisees to boost unit-level financial results has some significant consequences. A traditional franchise would not only be able to produce higher sales than a manager at a comparable site but will also be able to maintain a better watch on costs. In comparison, since the franchisor is expected to offer a unique cost structure than you do as a franchisor (may pay smaller wages, may not have the same insurance packages, etc.), it may also run a unit more efficiently even though you pay royalties.
As a franchisor, this will allow you leverage to consider areas where corporate profits can be minimal. Of course, you wouldn’t want to consider a business that you don’t believe offers a franchisee with a high chance of success. But if your plan includes expanding business divisions in addition to franchises, you’re sure to discover that your restricted capital growth budget won’t allow you to build as many outlets as you want. Franchisees, on the other side, could open up and grow efficiently in markets that are not prominent on the growth priority list.
So, these were the top advantages of franchising your business and increase the growth and development of your company. A sound franchise activity will propel your business model into a multinational enterprise. Would you need more illustrations? 7 – Eleven runs more than 56,000 outlets in 18 countries. Subway has over 44,000 stores in 111 countries. If you run a company with many branches or have a concept that can work through several populations, you may want to explore the benefits of franchising.