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How To Expand Your Small Business
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Article 4: Franchising
Franchising is a little bit like licensing or having partners and investors. As a franchisor, you can profit while retaining ownership of intellectual property rights and product control.
A franchisor also effectively enjoys an army of franchisee sales reps directly benefit from promoting and selling your products or services. There are more than 2,300 franchisors in the U.S. for a reason. It’s profitable.
When you sell a franchise to someone, the franchisee distributes your products and services under your label.
One key to making it work is to sell franchises only to quality buyers. In that sense, it’s like having employees. Your success in large measure is in their hands, as is your product’s or service’s reputation. But as the franchisor, you can dictate rules as stringent as you like, and of course, all terms are negotiable.
Most franchisees expect to invest a fairly substantial amount of their own money in their business, but all franchisees are expected to pay you, the franchisor, upfront for the privilege. As with other licensing arrangements, you not only receive upfront payments, but what also amounts to royalties or percentages of sales over time.
For these reasons, franchising is an excellent means of expanding into new geographic markets. But as a franchisor, you want to be sure to regulate where and when franchisees can set up shop.
Though you may reap short-term benefits from initial payments, if you permit franchisees to locate too close to one another, or in areas dominated by competitors, you’ll find that they won’t stay in business long, which isn’t good for your long-term cash flow or your brand’s reputation.
If you believe franchising your business is an attractive option, seek advice from experts in the field. Franchising laws differ from state to state. Experts, such as those at the International Franchise Association or the Franchise Registry, can talk you through the basics, including pointing you to turnkey systems that can be tweaked for your particular industry or product.
Expect, however, to assume substantial responsibilities. You’ll need to provide operating manuals explaining step-by-step procedures, market research to locate profitable sites, a means for pooling advertising and purchasing costs and training for the franchise operators.
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How To Expand Your Small Business
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