As a business owner, you are constantly looking to expand your operations. One option is franchising. It sure works for Dairy Queen and UPS, so why not for you? Like all business models, however, franchising has its cons. Before you give it the green light, it is important to understand how franchising would work in the context of your business. For instance, is your business model easily duplicable? Can your processes be scaled across markets? Are you able to train new franchisees on your model?
It has long been proven that incentive-based programs work. Here, franchises win. Bosses are not salaried employees, instead they must focus on running a business in return for profits. This serves as a mini guarantee that hard-working, talented people are going to show up. There is accountability in franchising that ensures you are surrounded by people who can get the job done.
Franchising solidifies and expands a brand. A McDonald’s hamburger, a Dunkin’ Donuts coffee, a room at Super 8 Motel: the thing they all have in common is impeccable uniformity—across the nation, even across the world. Customers will know what to expect from you and will seek out the reliability of your brand. As a franchisor, one of your most valuable assets will become your brand. Take care to legally protect it before you franchise.
As an entrepreneur, your buying power is limited. As a franchisor, your buying power can be as large as your franchise. Franchisors have the freedom to negotiate discounts and credits. Beyond this, you will be able to access more expansion capital. Franchisees pay to buy outlets in your chain. You will be getting paid to grow your footprint. In addition, franchising means a diminished risk to expansion.
The popular television series Undercover Boss, which features CEOs going “undercover” to check in on managers and employees at branch locations, features franchises for a reason. Bosses lose control in franchising. While franchisors are in complete control of their contracts with franchisees, franchisees still have control over various aspects, such as company culture or some local marketing. There is a push and pull on business strategies between franchisors and franchisees on things like investing in infrastructure, methods to redeem coupons, making management changes, and levels of advertising. Franchisees have control over their employees; you do not. If they hire poor employees, it reflects on sales and your brand value. For this reason, many franchisors heavily vet franchisees and their owners’ business experience and net worth. In addition, outlining franchisees’ obligations is crucial. Advertising levels, production expectations, training and quality control should be addressed in your franchise agreement.
Franchising can be an excellent way to grow your business, but like all ventures, there are risks involved. First evaluate if franchising aligns with your personal goals and values, then pragmatically look at your financial options and outlook. If you are considering franchising, speak with both a licensed attorney and a financial advisor and put in the leg work.