Franchising has been around for some decades, but it continues to grow in popularity. It is also counter-cyclical and so its growth is not hampered by a recession as much as other business models. In its ideal form it combines a successful business with the opportunity to buy into it, yet running it as a separate entity. Its strength derives from the fact that the financial interests of both franchisor and franchisee are the same: the growth and development of the business.
For the franchisor it can offer far quicker route to growth than organic and is less costly than growth through acquisition. However, key questions need to be addressed before the decision is taken to franchise:
- is the business capable of being franchised?
- is there a sufficient market to support a franchise network?
- is there the ability to train and supervise franchisees?
- are there sufficient resources, including funding, to promote the recruitment of franchisees and to develop the market for the mutual benefit of the franchisor and the franchisees?
- If the answer to these questions is Yes, then the product or service should be tested in pilot franchises. After addressing issues during this phase, the business will be ready for franchising.
Franchising can offer an exciting opportunity for entrepreneurial individuals to run their own business with full training and support in a tested environment. However, careful due diligence is required to ensure that the business opportunity is viable and can with reasonable skill and effort make money not only for the franchisor but also the franchisee before the decision to invest is taken.
A good franchise can provide the franchisee with ongoing revenue and capital appreciation for a future sale. It can also operate as a test run for buying further franchises or taking on a master franchise.
New franchises opportunities may offer greater potential returns in a newly-emerging market, but they are also more likely to be untested and therefore riskier.
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