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Why Franchise a Business?

Question:

I have been reading with interest the series in the Michigan Restaurateur on how to prepare a concept for franchising. I understand that I need to develop my brand, systems, operations and unit economics. I understand that I need to duplicate my concept in different markets. I also understand that I need to federally register my trademarks and comply with various legal requirements about my system’s Franchise Disclosure Document. That seems like a lot! With all of this, why would I want to franchise my business?

Answer:

That’s a great question! Yes! It can be daunting to think about franchising your concept!

First, you must evaluate what you want. Many people will be happy owning and operating 2-3 successful restaurants and making a very comfortable living. The problem is that you still need quality staff to operate your restaurants the way you want them operated when you are not there. Once you find and train your management staff, turning over those managers will be expensive and time consuming. In order to avoid the management staff turnover, you may need positions into which these quality employees will grow. You may need more and more restaurants to allow professional growth for your quality management staff. Or, you may see that you have a unique industry niche that if you do not expand, others will.

If you decide that you need to grow, you could grow from within. You could use the cash flow from your current operations to finance (or assist in financing) new restaurants. You may also have access to other debt (bank or other loans) or equity (business partners) to assist you in financing your own growth. In this economy, and because of the current capital markets, you may be very limited in your options to finance your company store growth. Regardless of the amount of capital you have, you may also be limited by staff resources … you may be limited as to how many corporate stores you can develop at one time.

The beauty of franchising is that you can use other people’s (franchisees) capital (money and development staff) to accelerate the growth of your system and brand. Franchisees will use their own capital to expand your concept. Franchisees will use their own access to capital to expand your concept. Franchisees will use their own staff resources to develop your brand. Using other people’s resources to expand your concept and brand will allow you to expand your concept at a much faster pace than you could do on your own. You will be able to expand your market footprint and brand awareness at a more rapid pace. You will be able to leverage the resources of your growing franchise system to establish buying power in the supplier and vendor market. You will be able to combine and concentrate your advertising and marketing investments at levels that will be meaningful for the brand. And, you will create more opportunities for your excellent management staff. They may be ideal franchisee candidates.

In sum, there are many advantages to expansion of your brand through franchising!

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