Having helped close to 500 companies from many parts of Asia develop their franchise systems in the last 18 years, my team and I have met thousands of companies who want to expand via franchising

However, not all of them are suitable or are ready for franchising. We have had start-ups (being entirely new in business, and operating less than a year) who insisted that many other consultants and prospective franchisees had wooed them already, and we have had very specialized trades (e.g. tattooing, painters) of which their pool of prospective franchisees would be very limited or even difficult as art in general is a very subjective thing, Yet another type were those which seemed overly faddish to us, meaning the product or service life-cycle did not seem long enough. We shall not even say too much about those whose businesses were in bad shape, but having the erroneous idea that they could still attract many franchisees into their fold (so as to help solve their cash-flow problem).

Franchising, like all business models, come with advantages and disadvantages.

ADVANTAGES OF FRANCHISING

• - Less capital needed for expansion: Franchising is an effective way of expanding your business without risking more of your personal funds. The franchisees have to folk out the funds to operate their own stores.

• - Better Management: Finding and keeping good managers and staff, well trained and motivated, is difficult for any business. Franchisees are people who are highly-motivated to succeed because they are risking their own funds.

• - Efficient and profitable: Franchised businesses tend to be run better simply because it's the franchisee's money that's at stake. This is why it is likely to be more efficient and profitable than company-owned enterprises. In fact, a lot of good ideas are generated by franchisees.

• - Faster growth: It's an ever-changing marketplace these days and, if you're not quick enough to expand and implement new things, somebody else will. Franchising is one effective way of keeping ahead. Indeed, there are few impediments to growth through franchising. Franchising offers the opportunity to have multiple units (companies) both locally and worldwide. Overseas, the franchisees who are locals there know their own countries well so as to overcome the social, cultural, bureaucratic, legal and other challenges. Few, if any, other business models offer that.

• - Economies of scale: With multiple outlets, the franchisor will have stronger buying power. Purchasing is done for an entire system, giving the buyer the advantage of lower costs and higher profits.

• - Strengthened Corporate Identity: As a franchising system grows so does its identity in the marketplace. Mall developers prefer to have successful, highly visible franchises as tenants; this implies that franchisors can secure great locations far better than non-franchise businesses.

• - Dominating the marketplace: Franchisors tend to saturate a given market with their outlets simply because they tend to grow so rapidly. This squeezes the competition out. A franchisor can also promote extensively because the cost is shared by multiple units (economies of scale again). Great locations plus a sizable advertising budget would give you an edge over your competitors.

• - Franchising maximizes income:

  • - Franchise royalties
  • - Franchise fee or joining fee
  • - Sales of service
  • - Property rental
  • - Supplies, materials sales
  • - Equipment sales
  • - Rebates from the equipment vendors and suppliers.
  • - Other spin-offs

• All the above can add up to a tidy sum.

DISADVANTAGES OF FRANCHISING

• 1. Loss of Control: While you the franchisor might control your own company and company-owned outlets, in franchising the franchisee controls his unit and, in varying degrees, runs it his way. If you have a proven, highly-effective Operating System that guarantees ultimate success if followed to the letter and if the franchisee adheres strictly to it, then day-to-day control is less important as it’s much like you were running the unit yourself. Therefore, to overcome this, your franchise agreement must be very comprehensive and detailed, keeping the franchisee tied to your system.

• 2. Litigation: As in all relationships, it's inevitable that, from time to time, you will get into a dispute with a franchisee (or worst still, a group of franchisees) – and the threat of litigation looms. It's true that if your franchisee is making good money, this is unlikely to occur. But the moment they start losing money, the nit picking begins. If it's not handled properly, you could end up in court being accused of everything from inadequate training to fraud and misrepresentation. The only way to avoid conflicts and litigation is by keeping your franchisees happy – which means help them be profitable and solvent. Yet another possibility is the exposure to vicarious liability for the acts, omissions and negligence of the franchisee.

• 3.Share of Profit: The bulk of an outlet’s profits would go to the franchisee as the franchisor collects only a percentage of the sales proceeds in the form of a royalty. And there are of course many cases whereby a franchisee reports a lot lesser than the actual figure so as to ‘save’ himself more money.

• 4.Meeting of expectations: Franchisees tend to expect their franchisor to take care of everything. For example, they would be unhappy if the competitors seem to be taking up more market share due to new products or an aggressive marketing campaign.

NEXT STEPS

• 1. Assess the feasibility of Franchising your business

  • - Gather information
  • - Attend a franchise seminar
  • - Read books on franchising
  • - Talk to franchise experts who have the real experience and qualifications
  • - Read books on franchising

• 2. Do you really want to franchise?

  • - Meet face to face with consultants at their place of business for advice
  • - Talk with business advisors, close friends, and family
  • - Evaluate your current resources for moving forward with franchising
  • - Financial
  • - People
  • - The 'heart' or drive or commitment to stay the course

• 3.Select a franchise consultant
  
  To help you in your selection, consider the following:

  • - Are the systems being used by the consultant to develop your franchise a proven one?
  • - Is the work being done in-house by full-time consultants or outsourced?
  • - How long as the consulting firm been in business?
  • - Can they supply their client list?
  • - Can they supply references and referees?
  • - Call referees
  • 1. What work did the consulting company do for them?
  • 2. Why did they choose to work with this consulting company?

 

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ASIAWIDE FRANCHISE CONSULTANTS PTE LTD (AFC) has over 20 years helped more than 480 companies in Asia to develop their franchise systems. With >30 partners worldwide, it helps franchisors find suitable franchisees. It participates in > 12 franchise-related shows in Asia annually so as to promote its clients’ franchise opportunities. Its consultants are certified professionally and have managed franchises before.

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