Is my business suitable for franchising?
Without a doubt, this single question is on the minds of many small to medium-sized business owners searching for a ‘business growth’ strategy.
Many businesses are now looking closely at the franchised model opportunity.
- Perhaps demand for your product or service has grown exponentially and you’re having trouble keeping up!
- Perhaps your business is in a growth industry that requires physical geographic coverage across Australia, quickly!
- Perhaps your business is restricted by a shortage of growth capital or finding it difficult to identify sufficient and suitable key staff personnel to support a company-owned or corporate growth plan!
And that is just what franchising is; quite apart from the legal definitions, franchising is a concept to facilitate growth in market share, by bringing a group of like-minded people together under one Brand banner and business system.
Before embarking on a franchise development plan,
it is important for business owners to understand
some of the implications of growth by franchising.
Firstly, and most importantly, a business concept must be put into practice and grown into a profitable stereotype prior to asking any “partners” to take a risk and invest. Too many times we have been asked to develop a franchise model from someone’s thought bubble. Our answer is always very clear, you must take the risk yourself and develop your startup first.
The business to be franchised must also be a well-proven profit maker with clearly defined objectives and market share opportunities. Without a proven history of success, it is unlikely that any franchising program would be successful.
Once the business is operating profitably and the system and processes have been refined, then you can begin to consider whether the business can be franchised. and what the key structural requirements of the business would be as a franchise model.
Market analysis is imperative to determine the customer appetite for the product or service. Franchise agreements can last for 5, 10 years or more so changing economic (and pandemic) conditions can also impact business outcomes. Thorough research should be conducted into future growth and revenue streams for the model to thrive.
Be very clear about what the franchise offer is and what value it provides to the franchise partner. Determining the selling proposition, the value equation and what stands it apart from competitors is really key.
As a starting point, the business must be assessed in terms of providing a profitable, balanced outcome for both parties, the franchisees, and the franchisor so both have an optimal opportunity for success.
Franchising your business also creates a new asset. The franchising entity will have franchise agreements attached to it, and the more successful the franchisees are, the more valuable that asset can become.
The key structural elements that need to be addressed include:
- Profitability of the concept
- Scalability and integrated operational systems
- Brand and image
- Market size, future demand and strong marketing capability
- Dispersion of demand for the business
- The complexity of the product/service offering
- Managerial implications of running the system under a franchised model
- Financial and managerial resources
- Personal and business objectives of the principals
Franchising is an exciting and dynamic growth strategy that for most is very rewarding. It is a serious step to decide to become a franchisor, so every consideration needs to be taken before entering the sector. The Franchising Code of Conduct is a mandatory industry code, and its purpose is to regulate the franchising sector and set out certain standards and requirements.
Some key Australian Franchise Industry statistics.
Source: IBISWorld Franchising in Australia Industry Report July 2021
- Revenue: $155.1 bn
- Employment: 516k
- Wages: $24.1 bn
Franchising is a popular and successful business growth strategy that suits most businesses but not all. Professional advice from a recognised franchise consultant is the first step on the pathway to franchising.