How does a franchise business model work?
A franchise business model – whether a business format, product or manufacturing – works by outlining the structure, formalities and proprietary formulas for success in terms of how the franchise business is run. As a result, the franchisor will typically ask a franchisee to sign a non-disclosure agreement followed by a Franchise Agreement, which will set out all the terms, conditions, rights and responsibilities of each party. Legally, the franchise business model is the basis on which a franchise business can be created.
What makes a franchise business model successful?
A successful franchise model is typically characterised by the profitability, expansion and growth in clients of the business as well as an expansion of the franchisee network into new locations and territories, including overseas expansion. After a business model is franchised, the franchisor will seek to ensure their franchisees’ success by providing ongoing training, support and access to a broader franchisee network so that ideas and issues can be exchanged, shared and resolved.
How should you franchise a business?
For those seeking more information about how to franchise a business, there are several steps that need to be taken consecutively:
- Assess whether your business is franchisable.
- Develop your business strategy.
- Consider becoming a member of the British Franchising Association (BFA).
- Seek specialist advice from an experienced accountant and franchise lawyer.
- Determine your fee structure – both ongoing royalty payments and the initial capital investment.
- Recruit and train franchisees.
- And finally, market your franchise business.
To find out more about how to franchise your business, take a look here.
When is it not a good idea to franchise your business?
Not all businesses are suitable for franchising. And there are several reasons not to franchise your business:
- Your business is too complex and its structure cannot be easily duplicated.
- It would be beyond your financial means to develop the necessary supporting infrastructure.
- Your brand doesn’t have distinctive unique selling points or has a weak brand.
- You need to have some trading history and proof of success to franchise your business. If either of these is lacking, your business is not suitable for franchising.
- You find it hard to trust and let others run your business.
- You don’t have the right business experience.
- Your business is too niche and might not remain sustainable over the long term.
- Your business is failing. Franchising is not the route to go to save a failing business.
What are the alternatives to franchising your business?
Franchising is not your only option if you want to grow and expand your business. Indeed, there are alternatives to franchising.
For starters, you can engage in licensing agreements with a primary trademark owner to manufacture and distribute their products.
Secondly, you can expand your business through company-owned operations. These are the expansion of an existing business into new locations but without franchisees being involved.
Thirdly, there are dealerships and distributorships to consider.
Fourthly, you might consider agency relationships, while joint ventures are another option to think about.
Other alternatives you have include cooperative organisations
