By L.J. Charleston (Extract from Business Advice Guides)
20-second summary
- Franchising can be a low risk way to grow your business.
- As a franchisor, your franchisees carry the financial risk, not you.
- Finding suitable franchisees to replicate your business model can be difficult.
- Licensing your business could be a less complicated alternative.
- Licensing can mean relinquishing control of your brand.
Full story
Franchising your business is a great way of expanding and getting your brand or product across a larger geographical area. It's all about growing your business at a relatively low risk. Put simply, it's the franchisees who have to borrow to set up premises and fit-outs. A franchisor provides the mode of setting up the business and offers support, but the financing comes solely from the franchisee.
According to Gail Reynolds from William Buck Business Advisors and Chartered Accountants, a major disadvantage of franchising is the difficulty of selecting suitable franchisees. "It's not easy selecting the people to take your brand or product to the next level. They need to stay on top of the competition, and it's easy to lose focus in the early days. Plus, there's the hassle of having to document everything so the business can be replicated. It's a huge task, but it needs to be done if you want the franchisee to do exactly as you wish so there's little chance to deviate from the quality," says Reynolds.
Duster Dollies
Julie Finch-Scally started her cleaning business, The Duster Dollies, in 1993, and now has franchises in Melbourne, Adelaide and Sydney. "When I encountered problems during those first few years, I analysed and solved them as if I was already a large company. This usually meant it cost money, but what I received enabled the system to be a professional product. For instance, I had to find a computer specialist to write a program for my scheduling. All the franchisees are still using this system, and it has become part of the selling feature of the business," said Finch-Scally.
"Franchising is the obvious way to grow. The greatest of entrepreneurs can only grow their business so far. When you have franchisees they will grow your business for you. They will become your greatest promoters and proclaim your company name and standards further than you could ever dream. I would recommend any business becoming a franchise, but it costs time and money, so you need to be fully prepared."
A cheaper alternative
An alternative to expanding your business is to license it, which is less complicated than franchising. Licensing is also a cheaper alternative, because it's not an exact replication of the business but simply a right to use a brand or product.
"It's easier to find someone to license because they can apply their own initiative and it doesn't fall under the regulations of the franchise code. Also, you don't have to train up or support that person. With a license you're just giving someone the right to use the brand name. But licensing has its own problems as well, because you're not in total control of your brand name anymore," says Reynolds.
Skydancers Australia
decided to license their business as they felt it was less structured and regulated than franchising.
"This more informal approach suits the casual, fun ethos of our business and allows each licensed distributor to operate independently," says Sandy Collins, Skydancers director.
"Licensing helped to increase our market share and gain exposure for our brand. Some of the advantages for our licensed distributors are that they get to purchase Skydancers stock and blowers at distributor prices for resale or rental. They have exclusive rights to the Skydancers Australia Pty Ltd registered trademark and they have centralised marketing through the Skydancers web page. We think it was a great decision."