Franchisors - franchising your business and some key considerations
Franchising is a way of expanding your business with the assistance of other third parties (known as ‘Franchisees’) who pay you for the right to operate the business under your business name and system, usually in a specified territory.
However, you should be aware that this arrangement is not suitable for every business, so understanding the advantages and disadvantages of franchising is important before deciding to proceed this way.
Advantages of franchising your business:
Some of the main reasons for choosing this type of commercial arrangement to expand your business include the following:
- Cost efficiency - Franchising your business can be a cost-effective way to grow your business as each Franchisee finances their own franchise business, including the costs of investing in new premises or staff members.
- Delegation of management - The Franchisees will run their businesses, and as such, reducing the management demands placed on you. You will be able to ‘vet’ each Franchisee before entering into a franchise arrangement with them, so will have an opportunity to determine the best Franchisees who will be highly motivated and have local expertise in your business industry, making your life easier.
- Motivation for Franchisees - Franchisees are more likely to be motivated than an employee manager as they have a vested interest in the success of their business and therefore the success of your brand. As the Franchisee’s income under the arrangement is dependent on the success of their franchise business, this should act as the motivation needed for the Franchisee to succeed with their business.
Disadvantages of franchising your business:
Some of the main reasons for not choosing this type of commercial arrangement to expand your business include the following:
- Initial set up costs – Although franchising your business should be cost efficient in the long run, it will involve financial investment from the outset in order to get a successful franchise model in place for future growth, including legal costs in preparing legal documents such as the main Franchise Agreement, operation manuals and marketing materials.
- Time and training - Franchising will initially take up a lot of your time, especially when first setting up the franchise model. You will also have to take the time to ensure you attract the right Franchisees and oversee what they do and develop and provide suitable training and support for your Franchisees so that they can successfully sell and expand your brand.
- Not suitable to fix failing businesses - Franchising should not be seen as a solution to provide new capital investment from other people when a business is in difficulty. You should only go down this route if you already have a successful business up and running but are unable to oversee the business growth on your own.
If you believe the franchise model is suitable for you and your business, it is important legal advice is obtained before proceeding to ensure the necessary Franchise Agreement is prepared and in place for any prospective Franchisee to enter into.
If you are considering proceeding with this type of business model and require any further information or advice on the above, including preparing a template Franchise Agreement for your business, please do not hesitate to contact Scott Richardson by phone on 01329 227907 or by email on [email protected].
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice, and should not be relied upon as advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. All content was correct at the time of publishing. Legal advice should always be sought in relation to specific circumstances.