NAME(S): Mark and Debbie Greening JOINED PPP: May...
Put simply, franchising is just a strategy for growing a business. But it is a strategy that is being adopted by more and more companies of all types and sizes to achieve rapid, low cost expansion. Here are some of the main reason businesses choose to franchise:
You’ve heard the term “Using other people’s money” as an often quoted secret for achieving business success. Well, when you franchise your business, your franchisees put in the money required to expand your business.
You can achieve a high rate of growth using franchising. This is due to a combination of factors but the point is, whether you are in a competitive new market where those that achieve an early land grab will be the winners, or you just want to get ahead of your competitors, franchising offers you a realistic, low cost way to grow quickly.
Increase the Value of Your
Franchising can have an immediate impact on the value of your business and not just because you have increased revenue and profits. Once you have demonstrated with your first few franchisees that your business model can be successfully duplicated, you have a genuine growth story to tell with big upside potential for any would-be investor.
This reason is easy to understand – if the person running one of your business units has invested their own money into it, they are motivated to perform!
You can gain competitive advantage by tapping into the local knowledge of your franchisees. Forget expensive market research and learning about the local market as you go – franchisees know the local market, the people, the places and have networks already in place.
An often underestimated reason for franchising is the power of the franchisee marketing fund. Imagine your business has national coverage – how much would you be spending on marketing? Same national coverage, but this time it's a franchised network and your franchisees are paying for the marketing – what has that done for your bottom line?
Group Buying Strength
Again, an easy one to get – as your network rapidly grows, your buying power grows with it, meaning you can negotiate harder with suppliers and reduce costs.
De-Risking Your Business
If you wholly own a multi site business and due to external factors such as a downturn in the economy, revenues fall, some of those trading units may become loss making and even threaten the survival of your business. On the other hand, if that same network is franchised, you are cushioned from the effects of the downturn. Your revenue is typically based on the revenue, not profit, of your franchisees. So even if you have some loss making franchisees, you can still be generating revenue and profits. Which by the way, is why so few franchise systems fail during recessions in comparison to wholly owned networks.