Franchising has long been a popular method for growing a business rapidly while reducing or eliminating many of the usual costs associated with a rapid business expansion. Just about any kind of business can utilize the franchising model to expand and grow its footprint.
But while there are some incredible franchise opportunities for some businesses, franchising is not a magic bullet. It is important to be aware of both the pros and cons of franchising a business before you commit.
Pros Of Franchising Your Business
Pro – Grow Your Business Quickly
One of the main benefits of franchising your business is that it enables you to grow it at a rapid pace. Your franchisees will absorb many of the usual costs involved in growing a business. For example, you don’t need to worry about the costs of investing in a new property or recruiting new staff.
The bigger your business is, the more money it can generate. Franchising your business is one of the less risky ways you can grow it and increase its value. If you have your eye on a future sale of the company, franchising is a great way of investing in its future value.
Pro – Reduce Your Costs
Growing a business and adding new locations is an expensive endeavor. Businesses use expansions to create new revenue streams and increase the size of their footprint in their industry. But these increased opportunities also come with increased risks and obligations. If a business doesn’t prepare for these before expanding, the whole endeavor can blow up in their faces.
But when you enable franchisees to open new outlets of your business, they will take on many of these costs (although there are many low-cost franchises and these are often attractive opportunities since they can be worked from home/van). The franchisee takes on responsibility for the financial obligations and the day to day running of the franchise. As the franchisor, you will receive royalties and other fees. The only costs you have to worry about are the costs of providing any branded materials you want your franchisees to use.
Pro – Easier Management
As a business grows, managing it becomes more challenging. Before long, any business owner will be forced to bring in outside help to assist them with their managerial duties. One of the benefits of franchising is that each franchisee will accept responsibility for managing their outlet, you don’t have to invest the time and money in managing every franchise yourself.
That’s not to say that you can’t indulge in some micromanagement if you choose. As the franchisor, you can set the terms of the contracts that you present to prospective franchisees. Franchising lets you decide whether you want to be hands-off or hands-on with any new outlets you open.
When a franchisee opens a new branch of your business is in an area you are unfamiliar with, but which they know well, you can take advantage of local talent without having to seek it out yourself. If your franchisee knows the area well and knows how to hire effectively, you will eliminate some of the most significant costs involved in expanding into new territories.
Pro – Raise Awareness Of Your Brand
The bigger your business is, the more people will encounter it, and the further your name will spread. Franchising your business is an effective way of growing quickly without many of the usual pitfalls involved in a rapid business expansion. This rapid growth enables you to get your business’s name out there and increase awareness of your brand.
Pro – Increase Your Purchasing Power
Increasing your revenue and developing your revenue streams isn’t just about your bank balance. The more money you have coming in, the more funds you will have available to purchase new equipment, property, and stock. Franchising will rapidly and reliably enhance your purchasing power and provide you with more profits to reinvest in your main business
Cons Of Franchising Your Business
Con – It Can’t Fix A Failing Business
If your primary business is already struggling and in a bad financial position, franchising isn’t going to solve all your problems. In fact, franchising a business that is already weak can end up being the killing blow that pushes it over the edge.
Con – Significant Upfront Costs
Franchising eliminates many of the usual costs involved in running and growing a business. However, you will need to invest heavily upfront to create a viable franchising model. Not only do you need to advertise the availability of franchising opportunities for your business, but you will also need to ensure the appropriate legal documents and other admin is in order before you pull the trigger. If your business can be run as a work from home franchise, then costs will likely be a lot less when compared to opening a retail store.
Franchising can be a great way of growing your business and securing your financial future. However, even the best franchises come with their own set of challenges. Once your franchising is set up properly and you have all your admin in order, franchising should be relatively smooth sailing. But you need to invest heavily upfront to make it work. Before you commit to franchising, make sure you understand the risks and rewards involved.
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