Once you have proven your business model, taking it to the people is the next big thing. However, growth can be overwhelming when not handled properly. Some companies opt to open one shop after the other. This option presents its fair of challenges.
Others choose to franchise in the hope that they can escape the challenges of opening their outlets. If your business model is replicable in other places, franchising is a great option.
Before you franchise the business, you must ensure that your business is ready. Not every company can take benefits of franchising. Indeed, franchising has its advantages. Here is a guide on some of them.
6 Benefits of Franchising
1. Access to expansion capital
Business expansion is an expensive undertaking. Companies require many things to get started. Finding a location is in itself a costly endeavor. Apart from the cost of the premises, the cost of feasibility studies and permits can be a lot.
Starting a business also requires startup capital in the form of furniture, IT infrastructure, permits, machinery, and equipment, among many other things. Franchising your business will give you access to this capital without breaking a sweat.
2. Your business can spread fast
When you decide to expand the traditional way, you can only open one shop at a time. Such a measure can prevent staff burnout, an implosion of company culture, and a liquidity crunch. Opening two stores at a time can stretch your team to the limit. It can also stretch the company finances. Franchising will help you open as many offices as you can.
Your company will stretch financially, too. It will also stretch its human resource, but it will not be on the same scale as opening new stores on its own.
Franchises also operate as local businesses. They can spread anywhere in the world. Anyone with the skills and resources can replicate the business model. This trait makes it possible for the company to spread in geometric progression.
3. Shared advertising costs
Sales make or break a startup company. To sell, one must attract people to the stores where they can buy. The burden of promoting the brand falls squarely on the franchising company, but with the help of other franchises, the company can supplement its advertising efforts.
Shop branding alone does not guarantee success for the new shop. The shop has to implement promotional campaigns to entice customers. For restaurants and other hospitality franchises, they can give free samples to customers.
Any form of promotion helps grow the name of the company. The more they become popular, the more the brand gets stronger in the market. Big brands command higher profit sharing percentages. If the franchise operates on fixed rates, it can set them higher every time the business grows.
4. Reduces the need to expand human capital
Talent is becoming a primary concern for companies. Getting talent, nurturing it, and retaining it is becoming more expensive every day. If there were a way that a company would avoid human resourcing and management, it would do.
Sadly, human capital is integral in customer service. Customers want a human touch. Companies must grapple with staffing needs and consequent challenges. Expansion through franchising offers some hope.
The company does not need to add many employees to help the franchised shops. The franchisee shoulders the burden of finding the team that will deliver his or her vision.
They deal with the resultant challenges of hiring and managing their workforce. The franchising company may add a few staff to support its growing business, too. However, the number of employees required will be few.
5. The business can keep its overheads to the minimum
A good number of companies fail because they cannot keep their operating costs to the minimum. If there are cyclical changes to the company’s revenue sources, the company must respond to that by matching its operational budget with revenues.
Overhead costs are always there. They don’t change no matter the economic times. If a company cannot keep its overheads at manageable levels, it will have difficulties. Franchising helps businesses pass on the bulk of the costs to the franchisees.
The franchisees pay rent, their staff, permits and inspections, and other costs. The franchising business, therefore, keeps its operational budgets low. Any revenue shortfalls cannot stretch its purse beyond the set level.
6. You can overcome legal limitations
Some regions are not friendly to outside brands. They tend to keep the inner circle tightly knit together to prevent outsiders from getting into the market.
Getting your brand into those jurisdictions can be hard. However, you can use the easy route into that market by finding local people who share the vision with you.
They will not face too much resistance since they are local. Your brand will break into that market without breaking a sweat. Some companies that are not traditionally franchise businesses use this method to get into difficult markets.
The benefits of franchising are evident. The company can reduce the risks associated with rapid expansion without stopping its growth trajectory. The franchisor has access to other people’s capital, their skill-sets, and their competitive advantages.
Once you franchise your business, you cede control of your brand name and reputation to other people. To ensure good results, you must support the franchises through:
- Training on procedures and methods accounting for franchise
- Management training for core functions such as accounting for franchise and payroll management
- Quality control of the product and service
- Materially such as uniforms, branding materials, and cross-promoting roll-outs and offers
- You must also vet them adequately to ensure the success of the business
Author: Sophia Williams