Of course, there are pros and cons with the franchise business model.
Some of the pros
Capital. The reality is one of the big restrictions for people in business is they don’t have the capital to grow and that’s a challenge.
With a franchise however you receive revenue from each franchise that you sell or franchisee you recruit. I prefer to use the term recruit to sel. Selling which implies a sell and forget approach as with a motor car. What you doing in franchising is building an inter-dependency or partnership which is the strength of the system when it is done properly.
People. The people you attract tend to be a high calibre because they have made an investment which means they have a commitment which is far beyond that of the average employee or team member, no matter how good. This is because they have some money or skin in the game which changes the whole mental approach. So prepare to go the extra yard in fact a lot of that more often.
Franchising also gives you the opportunity to build a hierarchy and focus on growing the business. This give you the opportunity to work on the concept, on your dreams and take the business from your original concept to something probably way beyond. You will keep growing with the business and get new ideas. That’s one of the things franchising does, it give you a whole heap of people out there, your franchisees, who want to grow their business, so they’re thinking and coming up with stimulating ideas to help you as well. Their input is quite a relevant point to remember.
Group buying is something you will be able to build on people don’t appreciate the difference it makes. When I was in Bedshed, we went to tender for our bedding and managed to reduce the price by 20% and that went straight to the bottom line.
The Brand. It is amazing what you can do when you have group power and the value of the brand. It’s all about brand whether you talk about Coca Cola or small regional franchise. The Brand is where the asset value is and what you doing with the franchising bigger asset is quite destining in its value and the fact the franchising growth needs to be rapid in the commercial business market and you can do it fairly quickly but like all things you got to do it properly, there are ways to do it successfully and there are ways to be re-dragged down with more traditional methods.
Increased asset value. One of the great advantages of franchising is you will end up with a much more valuable business. A franchise will attract a wider spectrum of potential purchasers. First you will not be restricted to someone who has the specific skills to manage a stand-alone business in a particular sector (motor mechanics for a service center for instance). Because your business is systemised it will become available to investors without the specific mechanic’s skills who will be prepared to pay more. And you can attract other franchise groups who may want to merge, one of the biggest trend in franchising currently.
You will also attract financiers who want to get involved, investment bankers and so forth, competitors and also suppliers. It is quite common for suppliers to buy a franchise group, with Bedshed, our major manufacturers supplier Joyce Bedding, ended up buying the group because we were too big a customer to lose.
After all, at the end of the day we all have to look at the value of our business. You may not intend to sell it now, but the reality is the asset value is so important for fundraising, talking to the bank, whatever it might be and you never know when the day comes.
What happens quite frequently, as with a coffee group in Perth recently, was Zaraffas, which is a fairly large 130-140 store coffee group in south east Queensland, went over and bought the WA coffee group out. The smaller group was tapped on the shoulder totally unexpectedly and through the sale received a bit of dividen. So you have to be prepared for that, it is one of the advantages.
Some of the cons
There are some disadvantages perceived by people going to franchising. The fact is you do lose your autonomy. You can no longer chop and change and do things as you wish. You have people you are accountable too, so that is important to understand.
And you have to put work into looking after the group and your franchisees. Building those systems takes time and effort.