You’ve spent countless hours and many sleepless nights nurturing your infant business into an adult that can stand on its own two feet. Now you’re wondering whether it’s time for an addition to the family. But how, that is the question. Do you open a second brand and work towards a chain of businesses? Or do you let others in by franchising your idea?
Both franchising and turning your business into a chain offer a little bit of good and a little bit of bad. That said, which route you decide to take would mainly be determined by two factors:
- How much control would you like to retain?
- How much capital do you have available?
Let’s explore these further.
Factor 1: Control
In a chain of businesses, you remain the seat of power. You make the choices that decide how the business develops. You don’t have to consult anyone on which products or services to offer, who to employ, how to spend the business funds, or where to open your next branch.
The drawback is that even with good managers and staff in place, being the owner of a chain will demand a huge amount of time and effort from you. The danger is that you might find yourself spread too thin very quickly. This could harm the business in the long run.
A franchise differs in that you hand over most of the control to your franchisees. You do have control over who gets to call them a part of your brand, and issue rules to operate by, but ultimately your business is now the franchisee’s business. It’s their shop to run, nurture and grow, and you can’t tell them what to do like you would an employee.
The pro is that if you pick the right people, your brand flourishes without a lot of effort and time required from your side. You can concentrate on the brand as a whole and on making bigger business decisions. Strategies flow from here down to the franchisees. In essence, by letting you, you gain a lot.
Factor 2: Capital
Opening a second, third or fourth branch of your business means you need to put all the necessary capital forward. Do you or the business have sufficient funds available to do so? You don’t want to have to apply for too big a loan and darken the excitement of a new business with the shadow of debt hanging over your head. To help you decide whether this type of expansion can be done, consider the potential return on investment from each product or new market.
Franchising is very much the opposite of the scenario above. With franchising, you’re working with other people’s money. Relatively little of your own or the business’s money would be required to establish a string of franchises. The franchisee is responsible for much of the setup and running costs of their business.
A number of branches means more staff, more buildings, more stock – and more risk. In the case of a fire, theft or similar, all the risk lies with you. You would be responsible for all the replacements and all the costs.
Remember that growing your business is not a matter to take lightly. Things might be going smoothly now, but any form of growth is bound to open new challenges. For instances, you might be able to manage two or three delivery vehicles without much second thought. But if you were to have five or six delivery vehicles, the logistics involved are multiplied, to the point where fleet management becomes a serious matter to think about.
It’s not just bad news, though. Keep in mind that by heading up all the branches in your business, you can become familiar with all the markets being served. You can get to know your customers and their needs, and tailor each business to best serve those needs. This ultimately creates a better, more profitable business.
One final point to mull over when it comes to franchising is that a franchisee is likely to put much more into your brand than a manager. The franchisee feels like it’s their business, while the manager feels – and is – an employee. It’s very hard to instil the same sort of pride in an employee as in a business owner.
So as you see, it’s not a clear-cut case as to whether franchising or establishing a chain of businesses are best. It very much depends on what and how you want to run your business.