Should a Single Owner Retailer Franchise or Not?
Owners of small retail businesses have plenty of competition, yet they are still a major force in the U.S. economy. Part of their success is due to advances in technology that allow for more efficient tracking of inventory, sales patterns, and customer preferences. Profitable store owners often consider franchising their store in an attempt to expand their business. Here are some facts about franchises that may help small retailers make their decisions.
Franchising Your Own Business, Pros:
As with any business venture, you should run a cash flow chart. You should also weigh the pros and cons of franchising your business. At some point, before you take the plunge, you need to hire an attorney who specializes in franchise law. There are several benefits to franchising rather than expanding.
Motivated Store Owners
If you choose to offer your store as a franchise option, you will attract like-minded entrepreneurs. The hardest workers usually want to invest their time and money in a business, rather than simply receive a paycheck. When an entrepreneur buys a franchise, he has “skin in the game” and is willing to work to make his store a success. This spreads your brand and brings in bigger profits for you, too.
Perhaps you would like to expand your business to multiple sites, but don’t have the capital to do so. By selling franchises, you lend your brand to those who pay for an outlet. The capital outlay comes from the franchisee, rather than your own pocket.
If you put a good business plan in place before you sell franchises, you can turn a healthy profit. This is always a balancing act between keeping the franchisee in business and earning royalties. In addition, if one franchise doesn’t make it, the others are not threatened.
Franchising Your Own Business, Cons:
There are some cons to offering franchises for your store.
The manager/owner of the franchise must comply with all legal requirements set forth in the franchise agreement. But, aside from that, he is pretty much free to do as he wishes. Your concern is that makes sales because that is where your income is generated. The franchisee, though, is concerned with profit because that is where his profits are.
As the owner of the brand you might offer coupons or sales discounts to bring in customers. But, your franchisee may not like that because it affects his bottom line. You’ve probably seen the disclaimer, “At Participating Locations.” This may be the case with your franchisees. Flexibility like this should be pre-determined in the legal groundwork before you ever start selling franchises.
Since your franchisees are running their own business, they will be less likely to cooperate with other franchise owners. An “every man for himself” attitude will prompt each owner to wait for the others to advertise or offer a sale. This way, they can cash in on the advertisement paid for by someone else.
Change is Hard
If you own your own outlets, and want to change something you can simply implement the changes. However, if you have a chain of franchisees, you have to negotiate with each one. This, once again, is where your original franchise agreement is important. If you want to update your logo, for instance, will each franchisee have the option to upgrade? Who will pay for it?
Once you weigh the pros and cons of franchising your business, you may be ready to make a decision. If you want to go ahead with franchising, contact a lawyer who specializes in this business arrangement. You can grow your business dramatically with less risk to your original store, but working with independent franchisees is not for everyone.