Many hugely successful multi-nationals, from McDonalds to Dyno-Rod, are run as franchises. Approached in the right way, franchising allows you to quickly expand your brand into specific territories while limiting your liability.
But you shouldn’t enter into it lightly, says Tom Endean of the British Franchising Association (BFA), which promotes ethical franchising by UK companies. “Don’t franchise your business unless you are going to do it properly,” he emphasises. “Franchising has many advantages, but if you do it without the right systems in place, then you could fail and it might take years to rebuild your brand in that market.
“Do your homework – find out as much as you can about the market you want to expand into, take your time in assessing the risks, and plan carefully what is best for your business. For some, it might be more prudent to franchise conservatively, maybe starting the process close to home. Other businesses could benefit from taking the leap and accessing opportunities offered in Australia, for instance. And make sure your company is very stable, with an established base and a model that lends itself to replication. Franchising is not a good option for businesses which are struggling.”
Some large corporations, such as McDonalds, use a master franchise model, adding an extra level between the original business and the franchisees. Rather than being overseen by head office, franchises instead operate under the master franchise established in that market. Tom explains: “With a master franchise, capital made by the franchises go into the economy of the country where the money is generated, rather than it all feeding back to where the company is headquartered. This works well and is received well.”
But what are the benefits for the company itself? “Although you do not receive all the profits,” says Tom, “franchising is a stable business model, and you are choosing business owners to run your brand under your supervision and your systems. They will push hard, because the more successful they are, the more they earn.
“Your brand will be more stable, your business network will be more stable, and you can monitor that everything is being done the way you want it to be done.”
If you decide to operate a direct franchise, where franchisees have a direct agreement with head office, you could employ staff within the country in which the franchise is operating to monitor progress. “A master franchise operates an easier management structure, but obviously adds another level of management who are taking a cut of revenue – you have to weigh up the pros and cons of which approach you take,” Tom states.
Tips on successful franchising
- Visit international franchise exhibitions to aid research into the opportunities offered by different markets, and to make invaluable contacts
- Contact the UKTI for advice and pointers to contacts
- Seek professional advice from a franchise consultant, choosing one which is BFA-affiliated
- Make sure you know what you want from franchising – think about cultural changes, legal aspects, differences in taxation law
- Ask yourself if there are businesses of the same type operating in the country you are interested in. If yes, how will you stand out? If no, why? Is there a gap in the market or is there simply not a market at all?
- Think about whether you will need to alter your model, or even your product, to suit the market you are moving into
- Speak to your bank, and ask if they have any partners in the markets you are looking into which may have franchise departments
Want to find out more?
An international franchise exhibition is being held in Paris from 18-21 March 2012.
For more information
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