It is no longer sufficient for businesses to have a huge set up in one place and expect to grow. It has become inevitable to have a global presence.
Today, most retail and service based brands have the ultimate goal of becoming a global player in their industry. But in order for them to achieve that goal, capitalization is essential and there is also the fear of even the best concept facing resource scarcity.
The most effective solution to this problem is franchising. It is the best way to take a business concept forward, with scope of profitable multiplication at various locations. The beauty of franchising is that the capital investment by the franchisor is low, as the capital for expanding the network comes from franchisees.
Franchisees, along with the investment, also bring along with them their optimum resources and knowledge of the local markets. This helps in the franchise outlets opening faster and far more efficiently than if the franchiser had to do it all. In fact, it would be an almost impossible task for the franchisor to understand how the local markets work.
It not all about capital; over and above that, the franchiser can rest assured that the expansion of the business is in the hands of people with high levels of motivation to make it work. Most franchisees put their hard earned money into a franchise and will do whatever it takes to ensure it is a success.
Franchising is a wonderful method of business expansion, as the franchiser is expanding his business without having to spread their resources across too many business units.
Less Costs And Higher Returns For Franchisors
The franchisor only needs to spend money on recruiting the franchisee, training and the required assistance before the opening of the franchise. It is the franchisees that invest on the premises, equipment and all other working capital that is needed to establish a franchise unit.
The returns on businesses that are expanded through franchising are very high. Since the franchisor’s expenses are limited, whatever the revenue they receive from franchised units is good. Of course their revenue would be much higher if they expanded with company-owned units. But with minimal investment and no hassles, they earn revenue from the franchises.
The Advantages Of Franchising For Both The Franchisor And Franchisee
Franchising is a comprehensive business relationship that consists of four essential elements offered by the franchisor to the franchisee, which ensure the success of a franchise.
- The franchisor and the franchisee enter into a legal agreement
- An operations manual about the business provided by the franchisor
- A training program provided by the franchisor to the franchisee
- On-going support by the franchisor
On the part of the franchisee
- He pays the franchisor an initial franchise fee
- He pays a continuing management services fee, which is a small percentage based on the turnover
Today, all sorts of businesses can be franchised and more and more businesses are turning to this expansion model than ever before. Almost any product or service can be distributed through franchising.
Franchising, unlike other businesses, does not face issues such as slashing marketing budgets, delaying capital investment or cutting staff numbers. Franchisers’ only focus is to support their franchisees, and closely monitor for any issues and resolve them through training programs.
This business concept has combated the downturn successfully and many franchisors achieved immense success. Franchising has certainly outperformed the economy and continues to be seen as a perfect business model for the short and medium term.
Franchising is expected to experience a huge growth spurt over the next few years and many franchisers are even diversifying into new product or service markets, to utilize the benefits of franchising.