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Feb, 01 2009

Franchising as growth strategy

Besides numerous benefits to count upon, franchising always has a definite edge over other modes of expansion like adding satellite locations that requires emulating an established business model wherein the entire effort ensues from the company itself.

Besides numerous benefits to count upon, franchising always has a definite edge over other modes of expansion like adding satellite locations that requires emulating an established business model wherein the entire effort ensues from the company itself. The following shows the areas where franchising is in a more advantageous position:

  • Franchising ensures faster expansion in comparison to opening one-at-a-time at new locations.
  • Also, the bulk purchasing of products, furnishings, advertising and promotional materials for the primary businesses and new franchises curtail the expenditure.
  • A company that franchises experiences better business image in terms of credibility, professionalism and acceptability.
  • Franchising is the interest-free investment for expansion that requires lower capital outlay and liabilities.
  • No risk of increasing headcount since paying the employees for new locations will be the sole responsibility of the franchisees.
  • Better business operations in new locations as franchisees who own the business will give their best through sincere involvement.

It is not necessary to be unique and large to franchise and the examples are plenty. In the education segment, franchise is a well accepted business model that hardly offers any uniqueness. Also, numerous business houses started small only to grow big through franchising. Business enterprises like VLCC, VETA, EuroKids, Jumbo King, Medicine Shoppe, Ferns & Petals and Koutons, which grew from scratch, vouch for the effectiveness of franchising

Are you ready?

Prior to opting for franchising, a company should make a thorough evaluation of the following criteria:

  • Its brand in terms of products/services should enjoy a wide appeal.
  • The products or services that the company offers should enjoy lasting demand.
  • The products or services of the company should have a well defined USP (unique selling proposition) that makes the products/services stand out among the rest in the same space.
  • The business operation of the company should be easy to manage and emulate for the franchisees. If it requires too much of specialised skill despite training support, the franchise model will not fit the bill for the average business investors.
  • The company should be operational for considerable time to project cash flow and profit margins for potential franchisees. As support to its franchisees, a franchisor should have strong resources to sustain a new project and business development.
  • The company should be capable of sustaining the time period prior to break even by the franchisees.
  • The franchise opportunity has to be affordable for greater expansion for this will draw a large number of business investors who want rapid ROI (return on investment).

Franchise offers flexibility in changing situations—depending on the situations, franchise opportunities vary in terms of products and services. But on the face value, it is preferable to meet the conditions discussed above. However, franchising does offer flexibility to fit in a revised situation after some modifications to the benefits of both the franchisor and franchisees.

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