03 Jan Franchising: The Pros and Cons – Is it Right For You?
If you have a successful business and want to expand to utilise its full potential, you might have considered franchising. Franchises are known to become global establishments with thousands of branches worldwide. Brands like McDonalds, Starbucks, Subway, etc, enjoy considerable amount of success but is franchising the right option for you? Some businesses benefit from this step while others won’t. Here are some pros and cons for you to consider before you take the step.
The Advantages of Franchising
If you have a good reputation and an established customer base, there are several advantages of franchising. Here are some of them for you to consider:
Access to Capital
Finance is one of the biggest hindrances to growth. Many businesses have the potential to expand and grow but can’t find enough money to support it. Franchising is a great way to gain access to enough revenue because franchisees will have to pay to use your brand and sell your products or services. You will be able to expand your business in different locations with very little investment.
Because of the low investment, you face lower risk as you grow. You will have to invest considerable amount of money to start a company-owned branch at a different location as you would have to purchase or rent the property, hire employees, and handle the marketing. If the branch fails, all of that effort and money would go down the drain. With franchises, you don’t have to invest as much money to expand and if the branches do fail, your loss would be manageable and minimal.
Access to Talent
You will attract more hardworking and determined people to your company if you franchise it. Talented and experienced people generally prefer starting their own venture and running a business as opposed to finding another job. They want profits and the ability to grow rather than a static job.
The Disadvantages of Franchising
Franchising has some disadvantages as well, especially if you don’t plan well or your system isn’t suitable for the franchise model.
Limitations of Innovation
One of the biggest problems with franchises is that they rely on the replication model so every branch is similar to the other. There’s very little room for innovation because the franchise model relies on consistency in all branches. It’s also difficult to create new systems and products and implement them in all the branches. This limits the flexibility of the business and that can be a problem in a competitive environment.
When you sell franchises, you hand the franchisees the right to use your system, products, and brand images. They operate independently and you only get money from the percentage of sales they make. While you can dictate (to some extent), how your brand is represented to the customers, you don’t have enough control to make the franchisees follow your rules and systems. It’s not uncommon for a franchisor and franchisee to become ensnared in conflict, especially when it comes to programs and sales that don’t boost profit but increase brand visibility.
If you plan well and train your franchisees thoroughly, it’s entirely possible to create a successful franchise. However, you need to make sure that your business is ready for it.
If you want to know more about more about the merits of franchising or want some advice, feel free to get in touch with us at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.
Thanks for reading,
The Franchise Institute Team
1300 855 435