Franchising: Expanding in the age of uncertainty

BusinessZone
Dan Martin
Former editor
BusinessZone.co.uk
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Business owners are carefully monitoring the uncertain economic state and, for many, dreams of expansion are being housed. With UK banks tightening the lending purse strings, companies are considering options to remain stable in the current downturn. However, for the right type of business plans do not have to be put on hold. Franchising is a viable alternative to securely expand in these uncertain times, writes Brian Duckett, managing director of Howarth Franchising.

Despite global economies, franchising continues to grow as a method of doing business around the world. The advantages include quicker growth through more highly motivated operators and using external finance and effort to open and run the outlets. When times are tough, it pays to be ahead of the game and take franchising as a serious means of business development.

Those who succeed are usually the ones who take the most risks. The majority of millionaire investors and business owners did not sit back and wait for success to come knocking on their door. These shrewd entrepreneurs have built up lucrative enterprises by operating differently to the rest of the crowd.

In business timing is everything, so identifying the right moment to act is crucial for success. So, when the economy is uncertain, starting a business or expanding an existing company when others are being more cautious could bring great benefits. Whether a franchisor or a franchisee, being on the front foot when the market returns to normal will mean that your business is better-positioned to take advantage of a sudden upturn in fortunes.

Contrary to popular belief, when the market is down it is possible to continue proposed business plans and realise that lifelong dream of independence or expansion. However, rather than going it completely alone, teaming up with a well-structured system as a franchisee or taking on the enthusiasm of a franchisee and become a franchisor, is a much safer option.

Franchising for success
Put simply, franchising is a commercial relationship in which one party allows the other to operate clones of a proven business system in return for initial and ongoing fees. The fee level varies greatly depending on sector but, in all cases, the amount paid must be a fair reflection of each party's investment in the operation.

Business-format franchising involves duplicating a successful business system by teaching others how to operate it. Those being taught, make their own financial investment in opening the unit, while those doing the teaching generally own a brand, which they want to grow and protect. Therefore, it is in both of their interests to work together and operate profitably.

Franchising, however, will not bring success for every business. Careful and in-depth evaluation must be conducted to weigh up the pros and the cons. Having concluded that franchising is the route to follow, it is important to evaluate the proposed business plan to get a preliminary insight into the chances of success. This can be done by evaluating objectives against specific criteria, such as whether the business is a proven, easily replicated, profitable and learnable business format, understanding the motivation, and how the proposal fits in with the overall long-term strategy of the business.

While it may not be possible to meet all requirements, being able to commit to a certain proportion positions a company favourably when evaluating a proposed franchising idea. Conducting this in the early stages is vital to avoid spending large sums of money setting-up a business system that will not work in practice.

Franchising truly is the way to grow successful businesses regionally or nationally. Many businesses have even used franchising as a strategy to achieve their international brand expansion plans, often when they do not franchise in their home market. Banks prefer to lend to franchisees of respected franchisors, so franchisees can find the money to set-up much easier, even in the turbulent times.

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By David Evans
17th Dec 2012 12:44

Franchising can be a very lucrative venture if the circumstances are good. Depening on the nature of the business, the reputation of the brand and practical factors like location, franchises can bring in alot of money for the franchise holder. It is important that people do not confuse licensing with franchising. Ther are different although there are alot of similarities. 

-- Dave Evans Commercial Director at accessplanit Specialist in learning management system and training management software.

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