Franchise Development Advice
8:38 AM by architect studio
Franchising is a rapidly growing business format in the UK and has been a successful method for companies to expand.
Sales through franchised outlets in the UK alone have grown from ?bn in 1984 to over ?bn in 2000. The number of different franchise systems and franchised outlets has increased substantially.
Franchising is growing in other countries across the globe and particularly in continental Europe. It is a system which makes it easier for companies to expand internationally and some franchise companies are now among the largest multinational operations in the world. The EC acknowledges that franchising has an important role to play on developing businesses in Europe.
Before deciding whether your company is right for franchising, let's take a look at the advantages and disadvantages.
Advantages
Franchising enables your company to expand using capital raised through your franchises and, therefore, your own financial commitment is reduced.
Your do not have to rely on your business making enough money for you to open new branches
Franchisees investing in their businesses are more likely to be more motivated than conventional managers
Less staff are required to run the head office and sales team than a conventional business.
Less exposure to the problems associated with conventional business, such as recruiting and retaining staff and the security of stock and cash
International expansion and the benefits of opening up in an foreign country through a master franchise has enormous potential
Disadvantages
You do not own the branches, thus not earning the same as a company-owned chain
You have less direct control over the network. You will however be able to terminated a contract with a franchisee who does not follow the system
You pass on the rights to use the trademarks and business system to outsiders and you need to be sure that you have some recourse if they are dismissed
You need to select you franchisees with great care to ensure your network develops to its full potential and that franchisees are capable and prepared to conduct their business according to your system
Your rate of growth will depend on your ability to attract new franchisees who are capable and have the right resources
Franchising is not a system to launch into to raise finance immediately. Your company should have taken the preparatory steps and have proved and disproved a pilot operation, operated at arms length form your own business over a sufficient period of time
You have the moral responsibility to ensure that your franchisees, who have invested their life savings in the business, are successful
Having considered the above advantages and disadvantages, you need to look at the question whether your business is suitable to be franchised? Most types of businesses are suitable for franchising, however there are some businesses which may not lend themselves to franchising and some that may be impractical.
Businesses with poor gross profit margins usually make poor candidates, unless the franchisee has the opportunity to quickly build up a substantial turnover. There have to be sufficient margins in the business, in terms of money and time invested, to make it worthwhile to both the franchisor and franchisee.
The franchisor has to have sufficient income from their franchisees to pay for the service they have contracted to provide in the franchisee agreement and, at the end of the day, to make a profit commensurate with their investment and effort. The franchisees have to trade sufficiently well to pay their franchisor for the services they provide and also make their profits.
All this has to be achieved within the constraints of the market place. Prices cannot be arbitrarily raised to create sufficiently wide margins. The governing factor is that franchisees must remain competitive in the marketplace.
Your easy to follow business system should be capable of being taught to complete strangers with no prior experience. The more skill, training or personal ability required by the franchisees - even is such general term as marketing and sales - the more difficult it becomes to recruit the right people. On the other and, the business should not be so simple as to be copied, or one with an end product that the public can buy universally and cheaply.
The business should be one in which the franchisor is capable of exercising control over the activities of the franchisees and the way they operate their outlets. Most importantly, the franchisor must be in a position to audit turnover levels and, consequently, the payment of fees. There must be adequate controls to avoid under-declaration of receipts by franchisees.
The fee of the franchise is also important. The lower the start-up costs, the easier it should be to sell franchises. It really goes without saying that there are more people who can raise ?5,000 than ?00,000 to start a business.
Summary
The best businesses to franchise are those with a good trading record, strong branding and marketing programs, and an established business system which can be encapsulated in an operation manual and easily passed on in a short time to newcomers. Also, if it is to be aimed at the largest sector of the franchisee market, it should not require too high and investment.
Sales through franchised outlets in the UK alone have grown from ?bn in 1984 to over ?bn in 2000. The number of different franchise systems and franchised outlets has increased substantially.
Franchising is growing in other countries across the globe and particularly in continental Europe. It is a system which makes it easier for companies to expand internationally and some franchise companies are now among the largest multinational operations in the world. The EC acknowledges that franchising has an important role to play on developing businesses in Europe.
Before deciding whether your company is right for franchising, let's take a look at the advantages and disadvantages.
Advantages
Franchising enables your company to expand using capital raised through your franchises and, therefore, your own financial commitment is reduced.
Your do not have to rely on your business making enough money for you to open new branches
Franchisees investing in their businesses are more likely to be more motivated than conventional managers
Less staff are required to run the head office and sales team than a conventional business.
Less exposure to the problems associated with conventional business, such as recruiting and retaining staff and the security of stock and cash
International expansion and the benefits of opening up in an foreign country through a master franchise has enormous potential
Disadvantages
You do not own the branches, thus not earning the same as a company-owned chain
You have less direct control over the network. You will however be able to terminated a contract with a franchisee who does not follow the system
You pass on the rights to use the trademarks and business system to outsiders and you need to be sure that you have some recourse if they are dismissed
You need to select you franchisees with great care to ensure your network develops to its full potential and that franchisees are capable and prepared to conduct their business according to your system
Your rate of growth will depend on your ability to attract new franchisees who are capable and have the right resources
Franchising is not a system to launch into to raise finance immediately. Your company should have taken the preparatory steps and have proved and disproved a pilot operation, operated at arms length form your own business over a sufficient period of time
You have the moral responsibility to ensure that your franchisees, who have invested their life savings in the business, are successful
Having considered the above advantages and disadvantages, you need to look at the question whether your business is suitable to be franchised? Most types of businesses are suitable for franchising, however there are some businesses which may not lend themselves to franchising and some that may be impractical.
Businesses with poor gross profit margins usually make poor candidates, unless the franchisee has the opportunity to quickly build up a substantial turnover. There have to be sufficient margins in the business, in terms of money and time invested, to make it worthwhile to both the franchisor and franchisee.
The franchisor has to have sufficient income from their franchisees to pay for the service they have contracted to provide in the franchisee agreement and, at the end of the day, to make a profit commensurate with their investment and effort. The franchisees have to trade sufficiently well to pay their franchisor for the services they provide and also make their profits.
All this has to be achieved within the constraints of the market place. Prices cannot be arbitrarily raised to create sufficiently wide margins. The governing factor is that franchisees must remain competitive in the marketplace.
Your easy to follow business system should be capable of being taught to complete strangers with no prior experience. The more skill, training or personal ability required by the franchisees - even is such general term as marketing and sales - the more difficult it becomes to recruit the right people. On the other and, the business should not be so simple as to be copied, or one with an end product that the public can buy universally and cheaply.
The business should be one in which the franchisor is capable of exercising control over the activities of the franchisees and the way they operate their outlets. Most importantly, the franchisor must be in a position to audit turnover levels and, consequently, the payment of fees. There must be adequate controls to avoid under-declaration of receipts by franchisees.
The fee of the franchise is also important. The lower the start-up costs, the easier it should be to sell franchises. It really goes without saying that there are more people who can raise ?5,000 than ?00,000 to start a business.
Summary
The best businesses to franchise are those with a good trading record, strong branding and marketing programs, and an established business system which can be encapsulated in an operation manual and easily passed on in a short time to newcomers. Also, if it is to be aimed at the largest sector of the franchisee market, it should not require too high and investment.
Labels: Franchise