Franchising is not for everyone or the faint-hearted and there are the negatives – from whether you are suited to franchising to the controls that the franchisor imposes on your business. Although most franchisees have an element of entrepreneurship inherent in them, most are former employees, from corporate backgrounds, or are the victims of mergers or downsizing, or are on the verge of retirement.
On a personal level you should ask yourself the following questions…
Franchising is a fantastic method of raising capital and employing dedicated, passionate and motivated management (franchisees) to grow a business concept quickly and effectively. When implemented correctly a good franchise results in a win-win situation as it also reduces the investor’s risks. However, if it was easy, every franchise would be a stunning success and sadly that is not always the case.
If the original concept from which the franchise derives is successful and proven – the next step to ensure long term success to the benefit for all parties involved is the implementation of some basic principles and structures.
The word “franchise” in French means “privilege” or “freedom” – in essence giving an individual the “right” to something – in this case the right to operate a business or licence under specific conditions.
Franchising is, without doubt, the most “public” of business formats. You recognise a franchise because it carries a strong brand, has a distribution mechanism that reaches far and wide and provides a uniform product, service and image to the public. The word franchising, however, can apply to many “rights” – from the franchising rights of cartoon characters like Mickey Mouse or movies like the Matrix to the franchise “rights” of soccer clubs like “Ajax”.
Buying into a proven turn-key operation
The advantage of buying a turn-key business with an established brand and tried and tested operational procedures is probably the most important advantage to investing in a franchise.
Reduction of risk
Whilst it is not an absolute given, the very fact that only 20% of franchises fail compared to the standard norm of 80% of independent businesses, it is safe to say that buying into a franchise system is less risky as you are buying into an established concept with proven operating standards.
“What often causes businesses to fail is not their profitability but their cash flow.”
If there is one lesson that has been learnt it’s that cash flow and the strict management of finances is at the core of every successful business. With access to finance restricted, it becomes even more important to make sure that every business has a ‘living’ business plan that will guide you through the maze of challenges and that stricter financial controls are put in place.