Fran­chis­ing an ef­fec­tive way to achieve growth

Belfast Telegraph - Business Telegraph - - Analysis & Company Report - By­bron­agh­bourke, Di­rec­tor, Au­di­tand As­sur­ance, Grant Thornton @grant­thorn­tonni

All busi­nesses, ir­re­spec­tive of in­dus­try and sec­tor, as­pire to grow in size, be­come more prof­itable and de­velop a strong brand in their mar­ket­place.

How­ever, turn­ing that as­pi­ra­tion into re­al­ity can be chal­leng­ing through or­ganic growth alone, and a sig­nif­i­cant num­ber of en­trepreneurs are con­sid­er­ing the fran­chis­ing model as a cost-ef­fec­tive way to achieve their growth plans.

Although po­ten­tially cost-ef­fec­tive, fran­chis­ing is not nec­es­sar­ily an eas­ier op­tion. Whilst it may seem ob­vi­ous, a full un­der­stand­ing of the fran­chis­ing model is crit­i­cal to en­sure a suc­cess­ful, sus­tain­able fran­chise is cre­ated.

The fran­chisor needs to care­fully as­sess all the ad­van­tages and dis­ad­van­tages, the level of man­age­ment in­put re­quired, and the pro­posed tim­ing of in­vest­ment re­turns. Only then should the de­ci­sion to be­come a fran­chisor (or not as the case may be) be un­der­taken.

Clearly, not all busi­nesses are suit­able for fran­chis­ing. Those that are suc­cess­ful tend to demon­strate four traits that form the solid foun­da­tions for a suc­cess­ful fran­chised net­work.

First of all, the busi­ness model should have a track record of suc­cess and prof­itabil­ity — prof­itable to both the fran­chisor and fran­chisee. The busi­ness must have a dis­tinc­tive brand and im­age — af­ter all it must be at­trac­tive to the fran­chisee.

It has to be eas­ily repli­cated — spe­cialised or niche busi­nesses will have a lim­ited tar­get mar­ket. Also nec­es­sary is an ethos built on col­lab­o­ra­tive work­ing re­la­tion­ships — re­la­tion­ships built on mu­tual trust, re­spect and sup­port, work­ing to­wards a com­mon goal will de­liver bet­ter re­sults.

As noted, fran­chis­ing of­fers the fran­chisor a num­ber of ad­van­tages, and these need to be care­fully con­sid­ered and bal­anced against the dis­ad­van­tages to al­low an in­formed de­ci­sion to be made.

Among the ad­van­tages of the model is scal­a­bil­ity. The abil­ity to scale the busi­ness rapidly and ge­o­graph­i­cally is key and it brings other ad­van­tages, such as col­lec­tive buy­ing power that will de­liver bet­ter pur­chas­ing deals through­out the net­work.

Crit­i­cally strong fran­chise mod­els also at­tract mo­ti­vated in­di­vid­u­als with a vested in­ter­est in the suc­cess of the busi­ness and de­vel­op­ing the brand. As such they re­quire less su­per­vi­sion and if qual­ity train­ing and sup­port re­sources are avail­able fran­chisees will re­quire less di­rect time in­put from the fran­chisor.

The fran­chisees will tend to un­der­take their own site re­search and fund the nec­es­sary in­vest­ment to ac­quire premises and staff, which can make ex­pan­sion much more cost-ef­fec­tive.

Fail­ure to de­velop the ap­pro­pri­ate fran­chise model will, how­ever, cause chal­lenges for a prospec­tive fran­chisor.

Com­pared to or­ganic growth, a fran­chise ar­range­ment may be less prof­itable as the bulk of profits will in­evitably fall to the fran­chisee.

The fran­chisor may lose a de­gree of con­trol, as in­no­va­tive and fu­ture de­ci­sions may re­quire ne­go­ti­a­tions with fran­chisees who may be re­sis­tant to change.

Also, if the fran­chisee re­cruit­ment process is not ro­bust, the fran­chisor risks brand con­tam­i­na­tion, as a non-per­form­ing and/or non-com­pli­ant fran­chisee presents a rep­u­ta­tional risk. The cost of man­age­ment time and lost re­turn from un­suc­cess­ful fran­chisees can be sig­nif­i­cant.

Fran­chis­ing a busi­ness is ev­i­dently not an easy op­tion to growth; it brings with it spe­cific chal­lenges and ob­sta­cles to be over­come, but man­aged in the right way, it can pro­vide a solid foun­da­tion for growth and ex­pan­sion in which both fran­chisor and fran­chisees are win­ners.

For fur­ther in­for­ma­tion or ad­vice, Bron­agh Bourke can be con­tacted at bron­agh.bourke@ie.gt.com Grant Thornton (NI) LLP spe­cialises in au­dit, tax and ad­vi­sory ser­vices

Fran­chis­ing is a com­pli­cated un­der­tak­ing

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