Buying a business franchising is not an especially new way of doing business, but it’s one that’s proven throughout the years to be particularly successful. Whether you’re the franchisor or the franchisee, business franchising has a number of plus points, and can be made into a good investment for everyone concerned, provided a few fundamentals are in place to make it a good investment.
The franchisor benefits from the franchise arrangement by being able to expand his business, often at a more rapid rate than would otherwise be possible. He also draws the financial benefits from the goodwill amounts built in to the initial franchise investments, and potentially even from a share of the franchisees’ profits. The franchisees benefit from having a tried and tested business model, with a recognised brand or proprietary technology that will allow them to enter into business in a better position that they would have been had they started alone.
It sounds like a good investment to opt for business franchising, from both sides, but it’s important to understand what makes a franchise a good investment. First there must be real brand value, or goodwill, which the franchisee can use to boost his business. There’s no point in investing in a franchise that has never been run as a business, or has not been tried and tested to ensure it’s a working formula – otherwise, in the absence of any invention or technology, there’s no reason to invest in buying a franchise over starting your own business.
As a franchisee, you should also want to look further into the franchise deal to see exactly what you’re getting for your money. Could you be in the same market position as your franchise if you invested the start up capital on your own? If the answer is yes, there’s no commercial reason for you to enter a franchise agreement, and you should simply invest the money on your own behalf. If not, you might have found a valuable franchise opportunity.
For the franchisor to realise a return on his investment through the business franchising model, he must make sure that he prices the goodwill of the franchise competitively to give him the best deal while making sure franchisees get true value for money. They should also make sure that the benefits of their business model are spelled out over those of starting a similar, competing business from scratch. That way, they can promote the unique value proposition of their own business opportunity, to ensure the growth you both desire.
Franchising a business can be a great way of achieving growth, or of building your own business with less of the risk involved. Look at some of the major franchise success stories: McDonalds, Starbucks – so we know it works. Provided the groundwork is put in place, franchising can be an excellent choice for parties on both sides of the table, and provided it’s worth the money to the franchisee, it should help provide a winning formula for business start up and financial success.
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