If you’re ready to expand your business regionally, nationally or even globally, you may want to consider franchising as a growth strategy. We often think of fast food giants when we hear the words franchise business, but you don’t need to be McDonalds, Subway or Hungry Jacks to grow using the franchising model.
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What is franchising?
Franchising is a way to increase market share by selling the branding rights to other entrepreneurs. The small business owner (the franchisor) shares a blueprint for running a clone of the business with another person (the franchisee).
Role of the franchisor
As the franchisor, you’re responsible for providing a franchise business model that is easy to replicate and sustain. You’ll also provide ongoing support including:
- A business plan
- Marketing tools
- Training and leadership
Running a franchise is time-consuming and can be stressful, but your support and guidance can help ease the transition. The more you can nurture the relationship and foster your franchisee’s success, the more profitable you will be.
Role of the franchisee
The franchisee will be an eager person who wants the autonomy of owning a business. They may not have a lot of experience, so buying into a franchise with a proven track record will be attractive.
The franchisee is responsible for the day-to-day operations, including hiring staff, customer service, maintaining the reputation of the franchise and promoting growth.
Beyond McDonalds, who can franchise?
Fast food is the classic franchise business model example, but as long as you have a successful product or service, you can franchise.
From lawn care to art parties, there are over 1,000 businesses that franchise across Australia:
- Services: Jim’s Mowing, Chem-Dry
- Products: Battery World, Snooze
- Coffee: Coffee Club, Cafe Buzz
- Food: Mad Mex, Bakers Delight
- Education: Tutor Doctor, Splash Swim School
- Construction: Hire a Hubby, Wet-seal
- Entertainment: Paint Your Town, TapSnap
When you read this list, there might be brands you recognise. This is precisely what franchising does; it makes the brand visible to more people. Franchising done well increases brand awareness across the country and even the world.
Benefits of franchising your small business
By granting franchise rights to another person or group, you’re utilising the franchisee’s financial and human resources to increase your profits.
The franchisor is detached from the day-to-day operation of any location run by a franchisee.
The type of person who wants to buy into a franchise is motivated and entrepreneurial, but prefers owning an established business with less risk.
Another upside? Banks are more likely to fund a franchised business than a startup because the business has already proven to be successful.
Criteria for franchising
Franchising isn’t the right choice for every small business, nor does it suit every business owner.
Ideally, your business should be established with a history of profitability through various seasons. If you’ve replicated your business in different geographic locations, your chances for success increase.
Here are the key elements that must exist before you consider franchising:
- The business is profitable
- The business is sustainable
- The brand image is strong
- The business model is easy to replicate
- You’re willing to provide ongoing training and support to the franchisees
If your business satisfies all of these requirements, you could be ready to franchise.
Downside to franchising
Franchising can be the golden ticket for many small businesses, but there are drawbacks to consider. First of all, it’s not a set-and-forget model. You’re expected to be hands-on, developing relationships with your franchisees and offering ongoing support.
Franchise agreements are set for a designated number of years. At the end of each term, the agreement can be extended, but this will be an ongoing renewal process that can be stressful.
It also takes time to see net profits. The life cycle of a franchise business is similar to the life cycle of any business.
It could take five to eight years to move past the growth and development stage and into the maturity stage.
Another downside is if the franchisee mismanages the business or doesn’t follow business guidelines. Your reputation is at stake, and ultimately if the franchise is underperforming, you’ll lose out on expected royalties.
How to get started?
Think franchising might be a good option for you? Here are your first steps:
- Take a look at directories with franchises for sale
- Talk to other franchisees and franchisors
- Explore The Franchise Council of Australia website
- Consult with a business broker who has experience with franchises
There are different ways to franchise your business and a business broker or franchise consultant can help you make those decisions. An expert will help you thoroughly understand the process and draft the necessary paperwork.
The Franchise Council of Australia has a directory of professionals and extensive resources for both franchisors and franchisees.
Are you ready to franchise your business?
Like any business decision, franchising requires research and planning. If you’re intrigued, talk to your business accountant and other franchise owners in your area.
Franchising can be a profitable business model for many small businesses with a successful track record and sustainable product or service. While there are downsides to consider, if done correctly, franchising is a way to turn your brand into a household name.
