Franchising is often considered as a safer and more secure way of getting into business ownership. It is widely recognised that franchising offers many benefits for entrepreneurs looking to run their own business, from offering a business in a box right through to training and support. Many websites online will emphasise well, the benefits for someone looking to get into business ownership. Primarily because it is the franchisee who will be investing (sometimes large) sums of money into a business which they will run as their own, in their franchise territory.
But a question that can frequently appear in the minds of many is: what are the benefits for the franchisor? Why even franchise in the first place? After all, if a business is so successful to the extend at which it would be viable to franchise, why bother franchising? The business owner at this stage would be achieving a satisfying turnover, no? So the question on people’s lips, especially when new to the world of franchising is, why should the franchisor go through the effort of franchising their business? Let’s take a look at that in a moment, but first it would be a good idea to recap on what franchising is.
What is franchising?
Most people, entrepreneurial or not, will have at least some very basic understanding what franchising is. Be it rail franchising, video game and film franchises, or business format franchising. In a manner of speaking, these are all similar. In the context of business franchising, the owner of a business will make the decision to open up their business model and branding to investors, who will trade as the business owner’s brand in their own area. When this happens, the business owner becomes known as a franchisor, whilst the investor is referred to as a franchisee.
Franchising isn’t employment. Franchisees will be in control over many aspects of the business, such as their own working hours and the general direction the business takes. However they won’t have control over certain elements, such as branding and the products and services. How the business operates will be defined in a franchise operations manual, and an agreement will be signed so that the franchisee follows this setup correctly.
Franchising enables the franchisee to run their own business, having a good work life balance, and doing something they love, with the support of the franchisor. There are many benefits of franchising over starting up alone, notably the use of a proven, established brand, plus a full business setup package – often referred to as a “business in a box”.
How Does The Franchisor Benefit?
At this point, it might seem like the only person benefitting is the franchisee. After all, they get the luxury of running their own business. They get a lot of independence which comes with business ownership, whilst still having the safety net of the franchisor should they need any guidance or concerns. The franchisee gets the full franchise package from the franchisor in exchange for their investment, plus the franchisor will need to spend considerable sums of money advertising their franchise effectively and profiling suitable franchisees. So – what are the benefits of franchising for the franchisor?
Increased Brand Recognition
The first and most obvious reason is increasing the brand’s recognition within the market. Whilst the business may be operating well on a local basis, at least for now, the internet is becoming more and more of a commonplace for the public to find products and services. This means, the presence of a business’s competition will be greatly amplified, by services such as Google Maps, search engines and social media. In order to stand out from competition, businesses need to increase their brand recognition. You can increase your business’s brand awareness by advertising on social media, in local papers and magazines, and by improving your presence online. But you’ll be fishing in a very small pool, because you’re geographically limited – unless of course, you sell products and services online, in a pool your competition is, too, fishing in.
Franchising is an excellent way of increasing a brand’s reputation, scaling the business outwards all the while being able to serve more customers. The brand will benefit from increased area of awareness and as the number of people engaging with a brand increases, the more influence this will have within the market. A good example of this is the McDonald’s franchise, which started out as a small burger shop many years ago. Thanks to franchising, the brand awareness has skyrocketed globally and the brand is now one of the most recognizable fast food chains on the planet.
Access to Expansion Capital
Non-franchised businesses like many supermarkets and some coffee chains, expand their business operations using their own capital. These non-franchised businesses will set up new outlets internally through their company, not through franchising. This route of business expansion requires considerable amounts of money, which the company needs to source. It is the company’s responsibility to find staff and management to operate the outlet too.
When it comes to franchising, the investment falls on the franchisee. The franchisee will fund the expansion of a business themselves, purchasing the rights to trade as that business in their own area. Thanks to the funding support many banks and businesses can offer franchisees, franchising can be a more cost-effective method of business expansion, both for the franchisor and franchisee. It is the franchisee who will be paying for the business’s expansion into a specific area, and along with that they become the owner of that business in their territory. This cuts out much of the hard work with sourcing staff as well, because if a business requires staff, that responsibility will fall upon the franchisee.
A Faster Method of Expansion
Building on that last point – because the franchisee is doing most of the legwork, both financially and operationally, the business can expand faster. In the opposite scenario, the head office would be doing the labour-intensive job that the franchisee would otherwise be doing, recruiting a workforce, paying for a store fit-out (if applicable), marketing the business in a specific territory, etcetera. Franchising enables faster business growth and the franchisor may even be able to open up different territories in quick succession, if not at the same time. This can greatly overtake the growth of a competing, non-franchised business.
Increased Business Profitability
Ongoing, the franchisee will be expected to pay a monthly fee to the franchisor. This will cover operational support, marketing and continued access to the franchisors brand. Most franchisors will be able to make profit from some of this monthly fee. This means the franchisor will have an additional income stream, all the while the brand is facing upscaled brand recognition, more business and better positioning over its competition.
Franchising a business has many benefits for both the franchisee and the franchisor. For the franchisee, franchising enables the entrepreneur to get into business for themselves but not by themselves. The franchisor will benefit from increased brand recognition on a wider, national scale, and operating a franchised business will have a positive effect on the valuation of the business too.
There are many different types of franchised businesses out there, some you probably wouldn’t even think were franchised. Thankfully the franchise sector is one that boasts considerable support. From franchise associations to franchise consultants, the franchising sector is thriving. Get in touch with our team today to learn more about how you can franchise your business in the UK.
