Entrepreneurs who are currently running their own business may have considered the business franchise model as a method of scaling up and growing their business. Franchising undoubtedly comes with many advantages and these are discussed in more detail below. Let’s take a closer look below.
Advantages of business expansion
The benefits of franchising cannot be overstated. They should be seriously considered when a business owner is considering scaling their business operations. From lower capital requirements to easier management of franchisees, the advantages of franchising are immense. Here are a couple of reasons you should think about franchising.
- Lower capital requirements
The nature of the franchising business model is such that franchisees pay an initial franchise fee to the franchisor which gives the franchisor significant leeway in terms of raising capital to offer new products, more products or advanced and additional services. In most cases, capital requirements are the showstopper when it comes to business expansion. Yet with franchising, it’s no longer a determining factor.
- Additional revenue
Other advantages of a franchise include the fact that the franchisor is also paid ongoing royalty fees based on the income and earning levels of their franchisees. This can significantly help with liquidity and cash flow, especially in cases of expanding to new markets or broadening a product and service range which requires R&D as well as market research. Both of which can be costly endeavours.
- Fewer employees needed
As a franchise unit head, the franchisee is responsible for recruiting their own staff. For the franchisor, this is really good news because they can save a lot of time, money and resources on hiring employees, dealing with employee turnover and more regarding recruitment. Recruitment is usually involved when the franchisor wants to expand their business, but with a franchisee taking care of these requirements, the franchisor has one less thing to worry about.
- Faster scaling
Reaching new markets is also much faster and easier as a franchise owner as opposed to a company which would like to set up branches in different parts of town or in the country altogether. This is because most of the set up and location establishment aspects are taken care of by the franchisee. Yes, the franchisor can help with defining certain territories and narrowing them down as well as help with market research. But the crucial aspects of expansion are left to the franchisee, who will be required to take over the reins and manage their operations.
- Better delegation of tasks
Micro-management has earned a bad reputation over the years and for a reason. It tends to be ineffective and lead to inefficient results. A franchisor who would like to expand their business operations would not be involved in the day-to-day business management of each and every one of their franchisees. Instead, they can have teams appointed specifically for the purpose of managing relationships with franchisees to ensure adherence to the parent company’s intellectual property as well as established methods and practices.
- Reduced liabilities and risks
Some further examples of franchisor advantages relate to the signing of various contracts such as lease agreements and employment contracts. Since the franchisee will be responsible for managing their unit of the franchise business, it means that the franchisor has fewer risks to deal with. In addition to this, the franchisees typically run their operations as a solo venture, handling things like business loans, financing, employment, running the business and more. Therefore, liabilities and risks are reduced substantially.
- More effective marketing and advertising efforts
Most franchisors will put in place a common marketing and advertising fund which franchisees pool a certain amount of money into. This can be a fixed monthly sum or a percentage of their earnings. This “kitty” is then essentially used for joint marketing efforts which promote the brand’s tone of voice, ensuring brand consistency, and which also promote the work carried out by the franchisees so that they can earn more sales. This means they can dedicate less time on marketing efforts and spend more time on actually running the business.
- Easier management of franchisees
Although most franchise agreements will stipulate that the franchisor is obliged to offer franchisees training and ongoing support, the franchisor can have a dedicated team of professionals that deals with these aspects. This, coupled with a strong internal management system and software can help improve communication between the franchisor and franchisee and ensure smoother management. In addition, the franchisees are invested in the success of their unit and will therefore be willing to hear what the support team of the franchisor would recommend in order for them to optimise their performance.
- Faster international expansion
And the last of the franchise advantages, but certainly not the least, is the great opportunity for franchisors to expand internationally with reduced risk and with the benefits of the local knowledge on the ground which local franchisees possess.
Closing remarks
There are numerous advantages of buying a franchise or even starting one and here we’ve only listed a few of them as they apply to franchisors. Ultimately, a business owner will need to consider various risk factors when it comes to expanding their business operations. Franchising offers better delegation of tasks and workflow, improved management and better staff structures as well as greater opportunities for earnings and building capital for even further expansion. Businesses that opt for the business model of expanding through chain stores, for example, will need to invest a significantly higher amount of resources into their ventures as opposed to franchisors. This is why franchising is such a great opportunity to scale up at a reduced cost.
