If you are looking to grow your business using the franchising model, then there are certainly lots of issues that you have to consider beforehand. It's also wise to consider consulting with a suitably qualified specialist. Franchising is a model used by many large businesses, including Subway and McDonald's, and has inevitably contributed towards their rapid expansion and global presence.
Doesn't Dilute Equity
When you finance the growth of your business through franchising it allows the existing shareholders to maintain a greater share of equity within the firm. This means that going forward they can run the business in a way that they see fit, and capitalize on opportunities when they arise.
Scale Quicker
Your business should be able to scale much quicker when you opt for the franchising model. Each time you enter into new markets, and sell more franchises, your balance sheet will become stronger through franchising fees. This is in comparison to other businesses, where they will often have to heavily leverage their business or dilute equity to finance this.
Limit Losses
Dependant on the structure of your franchise agreement it is unlikely you will be able to make a gross loss from selling a franchise in any giving trading year. Most franchisees pay a yearly management fee to the franchisor, which is a percentage of revenue. This means even if one particular franchise is not profitable, this will not impact the business as negatively as it otherwise would. This makes the business far more stable with more predictable earnings.
Well Managed
It is likely that each franchise will be well managed when the owner is so closely vested in its success. This allows for your business to worry about micro-managing less, and worry about long-term strategy more. It also means you will most likely have higher caliber management in place than you otherwise would.
Cannibalization Less Problematic
If two McDonald's franchisees open restaurants near each other then it will probably benefit the parent company. Not only do they benefit from the initial fee from both companies, but they also benefit from the increased revenue brought by their wider reach.
Although this may benefit McDonald's in this case, if they owned the stores directly they may find that they were competing against each other for the same business. This means that total revenue would be higher, but profitability would take a hit. With business franchising, your business becomes immune to this.
Encourage Efficiency
Through making the franchisee responsible, as directly as possible, for the costs that they bring to your business it's possible to drive efficiency within your business in a way that would not otherwise be possible. If one franchisee is using up more head office resources than you would like, there expenses can reflect this.
Economies of Scale
Because you will be able to reach critical mass much faster than you otherwise would, it means that expenses can be shared out amongst a larger organization. For example: when the business pays for a new product design everyone benefits. This makes the business more cost efficient.
Related Articles
Why Are Business Franchise Models So Effective?
By: Naz Daud | 27/06/2008 | Business
Business franchise models are amongst one of the most successful business structures in use today, spanning the entire globe and a range of industries. From large multinational franchising outfits through to the smallest franchisor, business franchise opportunities are a great way of generating profits from running a business without taking...
Start Your Own Freelance Business – a Five Point Plan
By: Nazeer Daud | 23/07/2008 | Online Business
A work from home business is often the easiest to start. You don’t have to worry about employ politics, setting up and paying for office space, and many of the other headaches facing entrepreneurs when they’re getting started with a business venture.
Advice on Drawing a Floor Plan for Your Franchise Business
By: Roni Deutch | 25/03/2008 | Business
Follow these five tips and you can avoid the common problems franchisees face when designing their own floor plans.
The Advantages of Business Franchising
By: Nazeer Daud | 08/05/2008 | Entrepreneurship
If you are looking to start a business using the franchising model, then there are certainly lots that you have to consider before hand. It's also, probably, wise to consider consulting with a suitably qualified specialist.
Things To Consider Before Starting A Franchise
By: David Peters | 05/08/2006 | Business
If you are interested in starting a new business you might consider that of a franchise because of the perceived notion that it is a sure success.
What is a Ufoc?
By: Roni Deutch | 11/03/2008 | Finance
The Uniform Franchise Offering Circular (UFOC) is a set of documents that franchisors are required to submit to a potential franchisee before receiving any money.
Learning Lessons From Business Online
By: Nazeer Daud | 30/05/2008 | Home Business
Online business is a whole different ballgame to traditional ‘offline’ trading, despite the fact that the two share some basic similarities.
Optimising Your Online Business for Search Engine Performance
By: Nazeer Daud | 22/06/2008 | Small Business
Optimising your online business for search engine performance on the Internet is a cost-effective, efficient way of generating natural, qualified sales leads on an ongoing basis.
Got a Question? Ask.
Ask the community a question about this article:
Frequently Asked Questions
Management Skills
By: cookecg51 | 14-07-2008
Whay are some of the categories of manegment skills that must be developed by mangement, and how does these skills help develop the corporate culture of that organization?
Has Pinnacle Investment Group, LLC, on Bryn Mawr ...
By: agent0365 | 14-07-2008
Has Pinnacle Investment Group, LLC, on Bryn Mawr Ave., in Chicago, IL, received any complaints on any business dealings?
How many time does a yucca plant bloom?
By: Annie | 14-07-2008
I have a yucca plant that has bloomed for the first time this year. It was beautiful. It has grown new pods that looked like the first ones that bloomed but they have not opened. Do they produce flowers more than once a summer. Also do I need to be pruning it or doing any special care. Also how often does it need plant food? Any growing tips are appreciated.
Thanks,
Annie
Should the number of projected franchise sales be ...
By: DomA | 14-07-2008
Should the number of projected franchise sales be listed in the business plan?
Selling a U.S. business to a European
By: RYAN | 14-07-2008
Dear Sirs, I am interested in selling my independant Porsche sales and service facility in Daytond Beach.I have been in business for 18 years and have made a good living.I have 2 ''problems''. 1...the business is run by myself and 1 parttimer.2 the current state of the American economy.The ideal person to continue needs to be young and with lots of Porsche repair experience.This brings me to the strength of the Euro against the dollar, and that Germans love this area..................how do I list my business in Germany? Ryan
I have a business with my mom, she is in financial troulbe and I am afftraid. what can I do?
By: the used one | 13-07-2008
My mother and I have a business together, she is in financial debt and trying to find ways to get out of debt by putting me in harms way. What can I do to protect myself against my mothers misguided attempts to clear the debt?
Q&A Powered by:
Latest Business Articles
15 Ways to Improve Your Closing Ratios and Sales Presentations
By: Katrina Sawa | 26/07/2008
It is not enough to do launching effective marketing campaigns to obtain new customers and to continually market to your existing database for more referrals and repeat business. In addition, you must be able to ask for and close the sale. Otherwise, it is a waste of time and money!
In Searching for Cost Reducitons, Look at Total Cash Flow Costs Rather Than Accounting Costs
By: Donald Mitchell | 26/07/2008
If you are a privately held company, look to reduce overall cash costs when considering alternative cost reductions, rather than the impact of reported earnings.
The More Trust, the More Time to Succeed
By: Andrew Cox | 26/07/2008
Bill Oncken, in his book Managing Management Time, says that the more trust you have with your "universe " of people, the more time you have to do the things that lead to success. Trust is hard to earn. Once lost it's hard to regain. It's the most precious asset in any relationship - at any level - at any time. Read on to see how a successful Division President builds trust.
10 Tips on the Issues With Selling Professionals
By: Drew Stevens | 26/07/2008
The world of professional selling is rich with information related to selling skills, sales training and techniques to assist professionals. However, after much rhetoric and information I am finding something completely different...a problem with selling professionals.
India - the Next Economic Powerhouse
By: Paul Hata | 25/07/2008
India is one of the fastest-growing countries in Asia. In 2006, India recorded a 1.2% of world trade share overall. The stat was picked out from WTO. The growth is mainly due to the liberalization that took place in India way back in 1991. Ever since then, there's no looking back.
Customer Service Toolkit
By: Drew Stevens | 25/07/2008
All businesses make money, yet those that are customer focused are more profitable.
Top 10 Brain Training Future Trends: New Mind/body Focus, Brain Trainers, and More
By: Alvaro Fernandez | 25/07/2008
In an emerging, dynamic, high growth market, like brain training, it is difficult to make precise projections. But, we can observe a number of trends that executives, consumers, public policy makers, and the media should watch closely in the coming years, as brain fitness and training becomes mainstream, new brain trainers appear, and an ecosystem grows around it. Here you have the Top Ten trends I predict.
Commercial Loans and Working Capital Financing Special Reports
By: Steve Bush | 25/07/2008
A prudent approach to working capital management is becoming more difficult for most commercial borrowers. Commercial loans have always been more complicated than realized by most business owners. Recent financing difficulties involving commercial mortgages, SBA loans and business cash advances have added significantly to the complexity of the entire commercial...
More from Naz Daud
Top 7 Business Tips For Surviving the Credit Crunch
By: Naz Daud | 16/07/2008 | Business
If you want to grow your business whilst your customers are struggling from the lack of liquidity in capital markets, then you might find that there are things you can do to ensure your balance sheet remains strong, and your business continues to grow. Through following my top 7 tips...
Telesales Tactics For Your Business
By: Naz Daud | 16/07/2008 | Business
In business to consumer telesales, the sales volume or conversion rates of your agents can make all of the difference to your businesses success. If everyone in the team can get one more sale per day that could make the difference between huge profitability and just getting by. To ensure...
Advertising Your Business Locally With an ROI Driven Approach
By: Naz Daud | 16/07/2008 | Business
As a small business you have to ensure that your advertising is targeted towards people in your local area, and towards people that are likely to be interested in your services. However, most small businesses fail to advertise effectively. They either under-invest in marketing, or they fail to track and...
Encouraging Entrepreneurialism in Your Business - 6 Steps to Take Now
By: Naz Daud | 14/07/2008 | Business
If your business is lacking in entrepreneurialism then you could be losing customers, losing sales, and losing ground to your competitors. That's not something any business wants to do without a fight. That's why I have put together six easy steps for your business to take that'll pump energy throughout...
Business Financing: A Look at Venture Capital
By: Naz Daud | 12/07/2008 | Finance
Raising business finance isn't always easy, and especially so when you've not got enough assets to secure against your ambitious plans. In some cases, you're going to have to part with equity. Venture capital funding can help you grow your business, and plays a vital role in fuelling growth and...
Start Your Own Freelance Business - a Five Point Plan
By: Naz Daud | 02/07/2008 | Business
A freelance business is often the easiest to start. You don't have to worry about employees, setting up and paying for office space, and many of the other headaches facing entrepreneurs when they're getting started with a business venture. But, that doesn't mean starting a freelance business is a walk...
Creating a Marketing Plan For Your Business
By: Naz Daud | 02/07/2008 | Business
A Marketing Plan is very important when managing a company, be it a small, medium or large scale business. It is the core of any marketing program and there are a variety of them according both to the type of business and its size.
A large corporation will have...
Ideas For Improving Customer Service to Retain Your Customer Base
By: Naz Daud | 02/07/2008 | Business
Customer service is the root of customer retention, but just how important is it to retain existing customers if there are many more on the horizon waiting to knock on your door? Why do so many supermarkets issue loyalty cards to their customers? These cards are only for customers, and...
Business 
