What Are the Benefits of Franchising a Business?

Franchising is the process of licensing out your business brand, procedure and intellectual property for a fee. This can seem like a tedious process, however, there are a number of benefits to franchising to be explored.

1. Growth through Franchising

The greatest barrier to aggressive growth is a lack of capital. Intuitively, it would cost double to set up another business yourself. Franchising makes this process easy. With the power of franchising, you can grow with the resources of others. This is because franchisees are the ones responsible for owning and running a business.

This is particularly important for small businesses with a novel concept but low capital. Franchising allows you to expand before richer competitors enter the market. The increased familiarity of your brand will exponentially grow your business. Franchises can even expand to foreign markets! The McDonalds and KFCs all around the world were created through the franchise process.

Furthermore, franchises are usually valued high in the market due to their reputation for profitability. This means your status purely as a franchisor can be useful. This status extends to services like banks, who see franchises as more reliable entities to lend to. It is usually common for franchisers to make back the money of their investment after the sale of the first two or three franchisees.

2. Optimising your Organisation

It can be hard to manage a growing business. Fortunately, franchising streamlines the process for you.
Firstly. you can expand your hierarchy without running into a ‘principal-agent’ problem. This is because the managers of your franchises are also the owners of them. Thus their management motivations align with their own profit incentives. This brings managers who are more committed and likely to do things like innovate! This is far better than hiring individual supervisors for all your businesses.

Notably, you can capitalise on the local knowledge of franchisees for site selection, local marketing and hiring/firing. This overall makes your organisation run more efficiently.

Note that overall costs will also decrease in line with economies of scale. Your franchise will use all the same suppliers and the same training and brand resources. A larger organisation also means you have greater buying power with those suppliers and can get bulk discounts.

3. Mitigating Risk through Franchising

The ability to reduce the risk of your enterprise is probably the most unique benefit of franchising. Importantly, our expansion comes with little risk, as most of the capital requirements are burdened by your franchisees. Your legal exposure is also minimised, as your franchisees hold liability for most things which occur within their branch itself. For example, consumers would file legal action against your franchisee for any accident which occurred in the site rather than you.

By reducing personal risk you can be more confident with further expanding your franchise. Does franchising sound right for you? The next paragraph will cover things to watch out for.

Things to consider

Before jumping into franchising make sure that

  • Your business is successful and replicable
  • You have a distinctive brand
  • Your business is sustainable
  • You have the necessary skills and attributes
  • You have access to professional advice

Our article here will go through each of these steps specifically. Finally, Australia also has a strict Franchising Code of Conduct – make sure to read over that before you actually take the legal step of franchising.

Summary

Franchising can be a mutually beneficial exercise for both you and the franchisee. It can help aggressively expand your business, optimise your management structure and reduce risk. Whether you have what it takes to franchise your business can be an important legal consideration. Be sure to consult with a specialist franchising lawyer before you act.

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