Every business owner dreams of growing and expanding their business. However, expansion is a capital and labour intensive endeavour that, unfortunately, many business owners cannot afford. If you want to expand your company but don’t have the resources to do so, franchising might just be your solution. The franchise business model allows you, the franchisor, to licence trademarks and proprietary business knowledge to interested persons, the franchisees, thus allowing them to sell products or services under your brand name. The franchisee will pay you an initial franchise fee and annual licensing fees to buy into your franchise. In addition to that, the franchisees will also pay you royalties, which are a percentage of their monthly gross revenue. If this sounds like something you would be interested in, continue reading to find out more about the perks of expanding your business through franchising.
1. Access to expansion capital
Lack of capital is the biggest hindrance for business owners wanting to expand their business. In most cases, you would have to borrow money from lending institutions or be willing to sell a portion of your company to investors. With franchising, however, you don’t need to worry about raising the capital because every franchisee finances their franchise outlet. This allows you to grow your brand using the resources of others and with no contingent liability.
2. Talented and motivated management
Hiring and training a new manager can take months, and even then, your manager can leave at the slightest chance of a better offer. Franchising substitutes managers with business owners who are equally invested in the success of the business. Since the franchisees invested a lot of money in the business, they will go above and beyond to ensure that the franchise stays afloat.
3. Accelerates expansion over a wide area
Leveraging off the assets of franchisees will help you grow your market share and brand equity faster and effectively. If you want to acquire a market leadership position in your niche, franchising will make it easy for you to penetrate new territory because franchisees understand their local market and can therefore cater to the customers’ needs more efficiently. It allows you open and operate new local and international markets that were not on your radar.
4. Lean operations
Enlarging your workforce is crucial when expanding your business. While hiring new employees will help with workload management, having more workers can create more challenges for you. For example, it will be more difficult to engage with individuals and meet their specific needs. Franchising, however, allows you to shift the responsibility of hiring and managing new employees to franchisees. Relieved of the costs and complexities of a growing workforce, you will continue operating with a leaner staff while also growing your business.
5. Increased revenue and profits
Franchising increases your streams of revenue. First, franchisees pay you an initial franchise fee to use your business systems and trademarks. Secondly, you will receive monthly royalties from all of your franchisees. Royalties are calculated based on the gross revenue and not profits, which means that your income is guaranteed whether the business is profitable or not. That, together with the minimum costs incurred during expansion, makes franchising a highly profitable venture.
6. Increased brand awareness
Franchising enables you to reach your target market more effectively through collaborative marketing and advertising. Cooperative marketing is a strategy for scaling a company’s marketing program across multiple locations by sharing the marketing cost with franchisees. The more franchisees you have, the more value you’ll get, and the cheaper the costs will be.
7. Minimised growth risk
Unlike adding company-owned outlets, franchising your business offers a high return on investment for relatively low risk. Since the franchisees cater to most of the costs required to open and run a franchise, you’ll invest very little money in adding a new location. You will not risk your capital and will not have to sign any employments and lease agreements.
8. Increased purchasing power
Franchising propels rapid business growth due to the fact that you can open multiple franchises for sale at a time. The bigger your roaster of franchises gets, the more likely you are to access better deals for inventory, equipment, vehicles, etc. Ultimately this reduces input and increases profitability.
9. Increased capital value of the business
As your franchise network grows into a national or even international brand, so does the value of your company. The combination of effective management, increased brand awareness, higher profitability, etc., helps increase the value of franchises in comparison to independent companies. For many years now, franchise companies have outperformed the S&P 500 index and this will continue to be the case in many years to come. In addition, franchises sell for much more money than an independent business.