One of the big problems that face a maturing, successful business is how to effectively expand from being a single or localised group of outlets. While a few stores can often be managed effectively by the business owner, it becomes quite a challenge to keep them all on track as the business expands. There are several solutions to help facilitate expansion:-
The first option allows expansion whilst retaining a central control, however it does carry substantial commitment of investment into premises and human resources everytime you wish to set up an additional outlet.
Franchising your business, retains a level of central control as each outlet must abide by the franchise contract that’s signed by both parties. The franchise contract, amongst other things, outlines controls on branding and how the business should be operated to ensure it follows as close as possible to the standards and success of the original pilot businesses. The main benefit to the business owner though is that each additional outlet setup is effectively a stand alone business. This frees the business owner from the financial investment that is required in starting up additional company-owned outlets. Effectively, each outlet will ultimately be responsible for managing the costs of starting up his or her new business, whilst benefiting from the branding and proven system that the franchisor provides.
This second option does of course rely heavily on the ability to be able to identify and package the key business formula so that it can be replicated by another aspiring business person. Identifying if this is achievable for yor business is therefore the first step in considering the franchising of a business. In order to determine this is can often be helpful to enlist a franchise consultant who has knowledge of the franchising process. They can help you to identify the core business formula and determine whether franchising it is feasible.
Another important thing to consider is that the business owner must realise that to effectively franchise his or her business they may have to give up running the business themselves. Franchising the business will require time and effort to focus solely on being a franchisor and helping to establish and support new franchisees. This can seem a daunting prospect for business owners if they are very attached to running the business they have built.
A good number well established businesses are confronted with the challenge of growing their business beyond its existing limits whether it be geographic or because of financial or human resources. The franchise route is often considered in view of the fact that it’s a well-known method of expanding your network without needing to take on the direct overheads of running additional business owned outlets.
One of the main benefits of turning your business into a franchise is the expansion possibilities it can offer you with. A franchised business can typically develop much more rapidly than a company handled development because its not so reliant on drawing on company resources to fund and staff each extra store. The franchisee takes on the responsibility for investing in his/her outlet and covering its running costs. This tends to facilitate a faster network development process.
The main consideration is whether the business model you have will essentially work as a franchise. If the company carries a main set of principles and methods which can be identified and packaged, then franchising could be a viable course for you. If the existing business is extremely reliant upon the personal expertise and talents of the key individuals who own the company then it could be more tricky to reproduce. Nonetheless, this doesn’t automatically mean it wouldn’t work as a franchise business if one can identify and detail the primary skillset and talents that a franchisee would have need of.
One of the draw backs, may be the revenue potential. Given that you don’t own the individual outlet, the income potential you will receive as a franchise brand owner is usually a portion of total earnings, most often referred to as the Management Fees. The total turnover of each outlet will not be yours to manage but rather, you take a royalty for being the controller of the brand and supplying on-going backup and support, brand marketing and advertising if it so applies to your business.
You will need to look up the services of a competent franchise consultant that can assist you to determine if your organisation has reached a level that is mature for being franchised. In addition to determining if the business is franchise-able, you will also need to think about the matter of when. Based on the maturity of the current business, it could already be at that place or maybe you will have to get a few more years of profitable trading under your belt. Either way, it’s going to be important to speak with a franchise advisor who is knowledgeable about the complexities of taking your present venture and turning it into a franchise-able prototype. Might now be the time to franchise your current successful business?
It is important businesses that are considering becoming a franchisor avoid costly mistakes. New franchisors should take proper advice when changing their business into a replicable business format franchise. It is vital that the potential franchisor makes the most of their resources and does not waste time or money.
NatWest’s Franchise Development Director Mark Scott says, “We advise that all businesses considering becoming a franchise avoid costly mistakes by using only respected BFA advisors. Avoid seeking advice from people or businesses that have simply paid their way to the top of web searches.”
The banks are very supportive of well set up and managed franchise businesses. When the bank reviews the structure of a franchise it looks for strong systems with robust management and advice from a BFA accredited consultant and lawyer.
To avoid making costly mistakes, businesses becoming a franchisor need to approach the BFA for guidance. Get experienced and knowledgeable advice on how to structure a good franchise.
A referral to a BFA consultant can ensure that the correct structure is in place. They will work with a lawyer and in time introduce the concept to the Banks’ franchise teams. Working with BFA professionals will make becoming a franchisor easier in operations and access to funding for your business and your franchisees.