How Franchising can Work for Your Business

By Brown Articles Published 11/20/2010 | Franchising

Franchising is an ideal option if you want to boost your business and have it grow at a rapid pace as well as gaining a good position on the new markets available today. This does not mean that franchising can suit all business situations and can prove to be a disadvantage sometimes. However, it is often ignored by business owners wanting to better their ventures when they could be benefitting from a franchising operation.

Business should consider the following advantages in franchising their businesses:

         When you franchise your business you can get issues dealt with quickly and pick up the pace of your business. You will also have decreased costs to deal with, as you will be hiring someone to take care of incrementing the production of your business and all you have to focus on is hiring a good franchisee.

         As your business grows you can increase your capital base from franchising fees. Usually a business seeks for loans in order to expand in a particular market, but with franchising you can avoid asking for loans, this will allow you to have a stronger balance sheet at the end of each month.

         Many businesses also choose the equity option, which is they give a percentage of their business to others in order to seek funds and help market their venture. Although this is tempting at the start you will probably regret this in the long term as you will be left with a smaller share of the business. With franchising you can avoid diluting your equity or position and you will still be getting the boost for your business.

         The moment you profit from each franchise that is sold you will also be earning management fees, which are calculated as a percentage of revenue. This means that if you take on more franchisees you will be earning more from licensing although they will be struggling to seek profitability, but you will build up on your total revenue.

         Although during bad years you will not be making as much profit as you would have wished for, your losses are limited. It is the franchisee who assumes the risk not you, as you are the one in charge of the management fees as a percentage of revenue and you will always be earning an amount in management fees. Once your business has been running for some time, franchising will be less profitable, but you will definitely be stronger as opposed to your competitors in times of difficult trade.

         Choose a network of entrepreneurs rather than employees, for although they have a profit incentive they are definitely more motivated and qualified. It will be a benefit to have each of your franchise run by someone who is motivated and has a strong incentive to succeed, and can only boost your business even more.