This is a question many business owners have pondered. If the goal of being in business is to create a valuable asset that is profitable, once this has been achieved shouldthe business stay as it is or expand?
For some, keeping their business as it is, is fine. Their business is manageable, it’s ticking along steadily and the effort and investment required to grow the business is too daunting.
For others ‘staying still and treading water’ is certain death. The challenge and desire to create a more valuable asset and a more profitable business on a larger scale is the ultimate goal. They realise that plenty of other people have done it successfully (think Boost Juice, Jim’s Mowing) so therefore they can too.
However increasing the scale and scope of a business requires significant resources. In terms of finance, staffing and physical set up costs. If it’s a business from a fixed location then there is the new lease, shop fit out, start-up equipment, stock, as well as finding and training staff, and of course marketing the business. If it’s a mobile business then you need a car or van also fitted out, initial stock, staff etc.
The business owners has to bear the cost of all the above, whilst still managing to successfully devote enough time and attention to ensure his/her existing business does not suffer as a consequence of their focus on opening the new location.
It’s no surprise then that business owners look for alternative approaches for business growth.
This is where franchising comes into its own. Franchising provides business owners with an alternative way to increase the scales and the scope of their business.
In the franchise model the franchisee funds the start-up costs of the business – including shop fit out, new van or premise lease, start-up stock etc. The franchisee is responsible for staffing the business (most commonly the franchisee works in the business and so becomes the staff).
The Franchisor provides the franchisee with their business system which is a detailed blueprint on how to successfully operate the business. They also provide the initial training and marketing support.
Because the majority of the start-up costs are born by the franchisee and not the franchisor, it means that the business owner (franchisor) can expand into a number of locations at a much faster rate and at a lower cost base. With the increased size of the business come other advantages such as group buying power, and group advertising power.
For the franchisor apart from achieving the goal of growing their business in a range of new locations they also benefit from receiving a franchise fee every time a new unit is sold. This franchise fee varies between franchise systems but commonly is in the range of $10 000 – $50 000 dollars per franchised unit opened. In addition the franchisor has the added benefit of receiving weekly or monthly royalty payments from each franchised unit. The royalty payment can be a flat fee, or a percentage of turnover or a combination of both. Some franchise systems also charge an ongoing marketing levy which is used to fund marketing for the franchised business.
Clearly the franchise model has its appeal. The question is can all businesses be franchised? To find out if you r business can be franchised, Speak with one of the friendly staff at The Franchise Institute.
Thanks for reading,
The Franchise Institute Team
1300 855 435
