4 Reasons To Franchise Your Small Business

As an entrepreneur or small business owner who wants to expand their business, one approach to consider is to sell your business as a Franchise. So, what is a franchise? Its simple and a potentially exciting business model. You, as the business owner sell the rights to another party to open a new unit of your business. This other party will be bound by certain conditions, which will be the franchise agreement, which means they must follow the owner/franchisor’s operating model and also pay the franchisor a commission on sales. In some franchise agreements the franchisor may offer support and training for a fee.

So, what are the advantages of franchising your business. There are four reasons that you might choose to franchise your business.

1.Increased income and rapid growth

Most business people want to grow their businesses, and franchises are one of the most effective ways to grow a business with only limited capital outlay or financial liability. The Franchisor can charge the Franchisee anything from 5 to 15% of the franchisees gross sales volume (typically) as well as an initial franchise fee to buy into the franchise to cover administration and training.

2.Franchises have a lower failure rate

Franchises are win-win for franchisor and franchisee compared to starting from scratch. Franchisees get to start with a proven business model which massively increases their chances of success compared to an all out entrepreneurial venture. Figures from Frandocs.com show that only 2 to 4% of franchises possessing a proven franchise concept fail compared to 65% of new new businesses that fail within the first three years.

3.Transfer of risk

Risk associated with financial outlay, managing human resources etc… are transferred to the franchisee. In essence when you transfer responsibility for your business by franchising you transfer the liabilities but retain some of the profits.

4. Speed to market

Franchising your business enables you expand your business into new markets at lightening speed with out a big capital expenditure as you can make use of the franchisee’s local knowledge and market expertise and contacts.

But, before you rush and look to franchise your business it is recommended that you do some business analysis to see if your business is one that can be effectively franchised. Is your product, service of offering, unique and compelling enough a proposition to excel in a range of markets? Is it attractive to other entrepreneurs. Are you profitable enough to justify expanding your business? I mean, do the margins really make it worthwhile? How easy is your business model going to be to replicate?

You need to think about all these issues first as part of the process of deciding whether or not to franchise your business.

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