Perhaps the most noteworthy example of the value of franchising for a small business is McDonald's. Once a humble restaurant in the middle of Des Plaines, Illinois, the company has grown into a billion-dollar corporation, earning an average of $5.5 billion per year. Sadly, small businesses remain stubborn when it comes to deciding whether or not to franchise their brand. Potential growth gets side-railed by initial franchising costs. Here are five reasons why franchising can help your business grow faster.
Reduced Expenses
Compared to employees on payroll, franchisees pay you an initial amount in exchange for becoming a part of your growing brand. In addition, they continue to make payments based on a percentage of their annual profits. This goes on for as long as both parties are bound by a Franchise Agreement. This means that the expenses of setting up the new branch, training new hires, and launching the location are all shouldered by the franchisee instead of the parent company.
Streamlined Management
Franchisees are held accountable for the day-to-day operations of the new franchise. They must adhere stringently to the Franchise Agreement and Operating Manual. Franchises work as an interwoven network, with goals and operations closely aligned. The success of one franchise depends largely on the success of the others and vice versa. This allows franchisees and their respective parent companies to get away with a relatively cost-effective and simple-to-use management system.
Expedited Expansion
Small businesses face much greater challenges and more layers of bureaucracy when trying to expand their brand. Leveraging cost savings and simplified management systems allows franchising small businesses to expand relatively faster than non-franchising competitors. You are basically getting paid by franchisees to set up your brand in some other location, be it another state or another country.
Longer Commitment
By accepting franchisees for your small business, you are bringing aboard more like-minded businesspersons who have decided to commit their personal and financial resources to a franchise. If a franchisee decides to leave the business prematurely, he/she stands to lose any financial and time investments in the process. Thus, franchising contracts are oriented towards long-term investors who place an equal measure of belief and faith on your brand.
Reduced Growth Risk
Franchising has high upside potential with low downside risk. Building and setting up new branches and outlets are more expensive and puts the parent company at a greater risk since operating capital is spread out much thinner. Every financial loss in a company-owned branch is felt by the parent company, with no scheduled franchisee payments to lessen the impact.
How Does the Franchising Process Work?
For starters, know your company inside out. Giving out precise directions to your franchisees enables them to represent your brand's mission and goals and run the franchise profitably, which results to higher revenues, a portion of which goes to your parent company.
Legal paperwork constitutes a large part of doing franchising contracts. All business owners are encouraged to pay close attention to their FDD filings. It can be tempting to forego legal services for counseling, but the long-term benefits, mainly the avoidance of legal complications, are definitely a worthwhile trade-off. Aside from legal counseling, the International Franchise Association is another great starting point for aspiring businesses that want to franchise their brand.
Imposing the right restrictions when screening potential franchisee candidates is just as important as deciding to franchise in the first place. You don't want to limit how they operate as a business since they'll need to think and act for themselves once you back off from daily operations. Provide specific instructions with regards to the hiring and training process as well as other important parts of business management, such as ordering supplies and managing inventory.
Final Notes
There are many franchises available for you to pursue, from restaurants to carpet cleaning franchise opportunities. Once you own one, it's beneficial to both parties involved to support the growth of your franchisees. Invest the time and attention to getting to know your franchisees and making yourself and your resources available whenever they encounter challenges. When they succeed, you also succeed.
