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Franchising
Written by Malcolm MacDonald-
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Is it for you and your business?
Firstly, what is franchising? Well, whenever I am asked this, I am also asked what is Licensing? Licensing is where a major or successful brand allows another company to produce their product or operate their services rather than set up in these other markets at huge costs.
But why would they do that?
If you consider all of the costs and implications of starting an arm of your business in a foreign country, it actually makes sense. Examples of this are Coca-Cola and Pepsi who do not have their own production facilities in the UK.
However, if you want to grow your business and make it generate a good income for you, then you should consider Franchising.
Franchising is a ‘joint venture’ between:
- An independent person (the franchisee) and
- You. A business owner (the franchisor), who wants to expand their business activities.
You would be franchising (selling) ‘Your method of making money’.
A contract gives the franchisee the right to operate using the franchisor’s trade name/trademark, in accordance with a business format or ‘blueprint’, that is, ‘Your method of making money’.
All aspects of the franchisee’s business are strictly controlled including image, products or services, systems and administration because anything else would not be ‘Your method of making money’.
If you do decide to Franchise your business, you may well find that initial expenditure is high – but once you appoint your first franchisees, they will pay you a fee for the Franchise, reimbursing your costs. And once you’re up and running, you’ll receive a regular income from each franchisee by charging a Management Service Fee, or, by marking up the price of goods supplied.
As a franchisor, you will:
- allow franchisees to sell your products or services and to use your trade name, logos, business style and format
- help franchisees to establish their own businesses to a predetermined format
- provide continuing support to allow franchisees to operate their businesses successfully.
At first glance, franchising might seem too good to be true. Often you’ll achieve rapid business growth. You can create a number of outlets quickly and you need only a small central organisation with a few highly skilled staff. And as franchisees invest their own money, they’re likely to be highly motivated with lots of local knowledge.
However, there are drawbacks
Developing a franchise network can be expensive, in terms of management time and capital outlay. Your investment can’t be recovered until franchisees are appointed and you receive fees and then a regular income from them.
There is also the danger of gaining any franchisee who is willing to buy into your methodology, irrespective of their values. Although short-term gains can be made in building the franchise network rapidly without paying too much attention to the quality of the prospective franchisees, inevitably it will become a source of real pain in the future.
Variable quality leads to variable customer experiences (among other headaches they will cause) which will damage the reputation of your brand.
Franchising is not a cure for a struggling business
It is a route towards expansion for an established, successful business looking to grow a network. And you will need to offer a tried and tested concept – not just a good idea, to your prospective franchisees ....... AND THAT MEANS GOOD PROFITS!
As with all forms of business, nothing is guaranteed. Finding the right franchisees is not easy, and life does not always run smoothly. Like you, they will believe that they know best for the business! But we here all know that is so not true!
Without a successful business of your own (with excellent profits) you have nothing to offer a prospective franchisee.
- You need to give the prospects a process to follow so that they can make good profits too.
Without that, they will not come. - You will need to find good quality prospective franchisees.
And keep them! - You will also need good advice.
And use it!
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