Franchising As Vehicle For Business Growth

How To Grow Your Business By Granting Franchises

Growing your business and raising your revenue base will definitely rank high in your business objectives. However, growth will often require significant investment of capital, especially to expand physical presence into different markets. The high cost outlay is often a constraint to growth as the business may lack the resources to foot it. One way to achieve growth is through franchising. If you wish to expand and grow your business but are short of the capital outlay, franchising may be the right vehicle.

Though Nigerian companies have shied away from the franchise growth option, this business model is popular in America, Europe and other developed economies. Our economy consequently misses out on the huge opportunities and growth potentials franchising has offered the other economies. Factors that might have contributed to the low attention may include:

1. Limited knowledge about franchising and its workings. The result is that the business model is not given much consideration by businesses.



2. Fear of abuse of the franchise relationship. Companies possibly fear that franchises will be abused by franchisees who may fail to observe the terms and conditions of a franchise.



3. The desire for close ownership and control which may see franchising as giving a stake to outsiders.



4. Fear that franchisee may fail to capture transactions honestly and thus cheat on royalties based on sales statistics.

Should You Franchise?

Franchising is big business in the USA, for instance. It is estimated that over 40% of the USA retail sales is contributed by franchises. Franchising is also said to employ close to 10 million people, with a new franchise being set up every 8 minutes. Total number of franchises in the USA is reported to be over 300,000, with annual turnover of over $1 trillion. Staggering statistics you'd say and they show what great opportunities for fast economic growth the franchising system offers.

There are good reasons to recommend franchising as a platform for business growth. Weigh the following:

1. The Funding Advantage.
Even for a successful business, there is a limit to available resources to invest in expansion, especially territorially. With franchising you can still achieve your growth objective. Usually, the franchisee bears the cost of the new location which is developed in accordance with specifications provided in the franchise agreement. As franchisor, you receive an initial fee and/or continuing royalty consisting of a percentage of the franchisee's turnover. Here, you're using the business name and system you've developed to generate increasing revenue without corresponding capital investment.

2. The Management Advantage.
Franchising resolves the challenge of developing and retaining a crop of managerial hands to run your branch network. Each time you franchise out your business, you eliminate the need to source the suitable managers to run a new outlet. The franchisee trains to run the business or hires his manager. Either way the attendant costs and challenges of hiring and retention are off your back. You also avoid the hassle of seeking out, acquiring and developing new locations, as prospective franchisees are the ones to source and develop their outlets.

3.The Local Expertise Advantage.
The franchisee, most likely, has operated in and has indepth knowledge of the market where he plans to operate the franchise. His familiarity with the local culture and market dynamics and a possible network of existing profitable relationships, may spell better success than the franchisor would have directly achieved, even if the capital could be mustered. Better results for the franchisee will still reflect in the bottomline of the franchisor.

Ultimately, it proves a fast and more cost-efficient way of expanding your business, offering you the opportunity to grow beyond the scope of existing resources.

Can Your Business Be Franchised?

It is believed that every business type can be franchised, provided that:

• It is a viable and profitable business which can attract the interest of prospective franchisees.



• Your company has the credibility to earn the goodwill and patronage of those who would want to operate under your business name.



• Your business system is teachable to those who acquire the franchise.
  

What To Do

• If you decide to franchise, it will be necessary to learn more about franchising.



• You also need to develop a standardised system for running the business, which each franchisee will adopt and operate.



• Agreements and documentation are important and these have to be developed. It is wise to ensure that the terms and conditions of the relationship are clearly and carefully spelt out.



• You must also develop your strategy for franchise expansion to ensure that growth is systematic and beneficial.



• Design a marketing campaign to put word out that your business is available for franchising.

Franchising has worked in other economies and may need serious consideration by businesses in our environment. If a Tantalisers, based in Lagos, waits until it can afford the cost of outlets in Maiduguri, Owerri, Kano or Katsina, these markets may remain out of its reach for a while. A franchise arrangement can readily give the company access to those markets. In the process, enterprising citizens will ride on their brand name and business model to build new businesses. Both parties benefit and the economy is the better for it. So, as you seek growth for your business, remember that franchising is one possible option. It has heen used successfully by businesses in other economies, so its dynamics are already well-established. Don't be held back by the stereotypes you find around you (oh, people can't be trusted!). The limitations of thinking in certain patterns as we often do have most of the time circumscribed our possibilities. In many ways, the economy remains at infancy, unable to use even tested systems that have been engaged successfully elsewhere. You can choose to think differently and possibly contribute to a more dynamic business environment.