You’ve established your business and your systems are working fluidly and creating profit. It may be time to expand. Although there are many ways to do so – e.g. selling equity, bringing on partners, or adding to the services or goods currently offered – franchising can also be an excellent option for business expansion.
1. Franchising reduces debt requirements.
The first one is simple, franchising typically lessens the risk of debt, as it requires the franchisee to both provide money to purchase a franchise and to commit to the leases, rent, and other operating costs. In other words, you can finance expansion using other people’s funding.
2. Manage business growth through franchising.
Franchising allows for the management of general business risks. The agreement between a franchisee and franchisor – if prepared properly -- will hand substantial responsibility to the franchisee for both financial and legal commitments. As the franchisee will be the one signing the lease and dealing with new hires, there is significantly less risk on the franchisor.
Furthermore, when looking to grow a business through hiring, bringing a manager on board often allows for more growth, as the owner is free to do big picture projects and marketing. However, it’s not uncommon for these team members to leave or move onto the next opportunity before the ideal time. This turnover can hurt a business and often wastes time of the business owner because of the necessary training and investment. But when you expand with a franchisee, it’s less common for them to leave this quickly, as they have their own financial and legal obligations tied up in the franchise. Additionally, franchise owners will often be more inventive, innovative, and better performing than other employees because of their personal commitment to the business’s success. All of these positive qualities and talent can potentially turn into more profits for the company owner Fewer turnovers also mean less time searching and training new recruits.
Franchising a business also typically allows for faster growth within the market. Opening a single location of a business can take an enormous amount of time, but if a company is able to have the opportunity for multiple franchisees to be working simultaneously, it allows the parent company to keep competitors from taking their spot in the market. Franchising a business multiplies a brand’s reach with the appropriate staffing built in (franchisees). Although it is possible for a single business owner to open multiple locations, running multiple sites on your own can be an overwhelming task. Additionally, when it comes to choosing locations, as the franchisor, you have the ability to decide which markets to move into and which to stay away from, again working to mitigate the risk of loss. As it is your business, franchisors often retain discretion in their franchise agreements to still be able to make the final decisions as to how they expand and where.
3. Franchise businesses experience higher valuations.
Finally, one more reason to consider franchising is your evaluations. Often times, businesses that are franchises are evaluated at a higher price – which is important for the time you decide to sell or retire from your business. Higher evaluations will make the selling price or price point for a deal higher, which hopefully means a better price when you leave your business.
Conclusion
In the end, franchising your business can potentially provide a great opportunity for manageable growth. Franchising provides an opportunity to help another business owner start their own business without losing too much time or capital. It can provide a solution that is beneficial to both the franchisee and franchisor.