Franchise Your Business: Build Your Empire
Franchise Your Business: Build Your Empire
Franchising is one of the most aggressive and effective ways to expand a business. Think of the brands we all have witnessed expand seemingly overnight through franchising, H&R Block, Blockbuster Video, Ford, Menchie’s, Pizza Hut and others have covered the global landscape with locations through franchising. Almost $2 trillion in annual economic output is produced every year in the U.S. alone through franchised businesses. Why do companies franchise as opposed to owning the locations as corporate units? Franchising makes up an enormous portion of the overall economy when considering how many consumers purchase goods and services from franchised businesses. What are the key drivers for franchising a business? Human Capital, Financial Resources and Speed of Growth top the list. Franchising offers an answer to all three.
When you own a business, you get used to the idea of being disappointed. Many times, the disappointment has to do with other people you employ. The problem with employees is that they don’t ever have the passion or commitment to the growth of the business and success of the brand that you as the owner do. When you do find someone who cares as much or more than you do….they leave and become a competitor. It seems like such a fine line to walk between incompetence and a real threat to your business. This is where the concept of franchising can make real sense for a business owner looking to grow their brand. Franchising is an expansion vehicle that puts the franchisee in an ownership position while still leveraging your support, guidance and intellectual property. The best part is, a franchise agreement allows you to control every part of the business model and how the franchisee works within your brand. There are also non-compete covenants that carry weight and protects your concept should a franchisee try to steal your know-how.
When it comes to capital, franchise development allows you to accept investors into your business without giving up equity and control. The obvious capital comes by way of franchise fees and royalties paid to you for the use of your name and business system. Typically, a franchisee will invest $30,000 – $50,000 for the rights to your name and business model. You would train, support and help them get their business up and running for this investment. Following the franchise fee, royalties are paid by the franchisee typically on a monthly basis as a percentage of gross revenues. 5-10% of Gross Sales is a typical royalty rate for a franchise system. The indirect infusion of capital comes through the franchisee’s investment into the business itself. As each new restaurant or outlet is opened, they make the investment in the build out, the signage, hiring staff, marketing and other expenses to open the unit. The combination of investments by the franchisee allows the franchise system to bring in outside capital without giving up equity in the core business.
Rapid growth is inherent in franchising and certainly one of the drivers for why businesses go the franchise route. In 2016, several Franchise Marketing Systems clients had extremely aggressive growth that would be difficult to match with any other business model outside of franchising. In 2016 alone, Anytime Fitness sold 384 units, Creamistry Ice Cream sold 76 units, Synergy Home Care sold 27 new units along with a group of other brands with rapidly expanding networks. The Franchise Model is designed to allow for scale and speed to market. The combination of a local owner operator who knows the market, runs the business like an owner and a strong operating model create a strong recipe for growth.
How does franchising work and what does the process look like to franchise a business? It starts with systems, structure and defining your processes. Good businesses have great systems and processes in order to be able to teach others how to operate the business successfully. You should have your “secret sauce” on paper so you can transfer it to others and help them be successful. In every position throughout the business, you need to be able to replace yourself and empower others so you could teach a franchisee how to build their business within your franchise network. Franchising applies to many industries now and certainly is worth a look if you have visions of taking your empire to other markets in the U.S. or around the world.
For more information on how to Franchise Your Business, Contact Christopher Conner with Franchise Marketing Systems: