There are two big advantages of franchising. First you will be using other people’s money to grow your business. Your franchisees will have to pay an initial fee to take a franchise and will have to fund all of the working capital of their business. Secondly, you are also capitalising on the fact that your franchisees are not simply employees earning a salary and having a 9-5 mentality but are individuals who own their own business. What this means is that they will try much harder to make a success of the business than would otherwise be the case with an employee. There is certainly a great deal of evidence to support the view that franchised business do better than non franchised businesses. Indeed, McDonald’s recently announced that they were converting all of their company owned outlets in the UK to franchising because the franchise outlets performed much better.
There is, however, a price to pay for these advantages. The skills required to make a success of franchising are different than for a non franchised business, franchisees need a lot of hand holding and, of course, you have to share in the profitability of the franchisee’s business which would not be the case if you owned the business yourself. In a franchising context, not only must you, the franchisor make a profit, but so must your franchisees.