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Management / Business Planning / Advertising
February 2014 Entrepreneur's Edge

Is There a Franchise in Your Future?

February 03, 2014

Any observer of this industry will immediately notice that the majority of businesses are independently owned operations. 

They are small businesses, and few have more than 10 employees. Because of their size, they often don’t have the funds or the time to have sophisticated, consistent marketing and management strategies. 

Yet they compete with franchisees of national and regional franchisors that have access to the output of advertising and marketing agencies and use <photocredit>ThinkStock/iStock/Tashatuvango</photocredit>management systems and processes that come from the franchisor. 

There are obvious advantages and disadvantages for both the independent and franchise business models. But is there a case for a third business model that combines the advantages of both, yet minimizes the disadvantages of either?

First, let’s discuss the advantages and disadvantages of both business models.

Ease of entry

It is far less expensive to open an independent business because there are no up-front franchise fees and no “package” of required, “franchise specific” purchases, typically of marketing materials and training.

Cost of ongoing operations

The independent will not be required to pay an ongoing percentage of sales to the franchisor. Of course, if a franchise generates more revenues, then many business owners are glad to part with a small percentage.

Marketing and management

The franchise owner has, depending on the franchise, the franchisor's recognized brand, marketing material, sales aids and scripts, professional management training, operations and training manuals, policies, field support and a peer group of other franchise owners. The owner/operator is on his own, although he does have access to business management coaches that can assist in building the business.

Access to regional or national accounts

It will be far easier for franchise owners to have access to regional or national accounts such as insurance companies, property managers and corporate purchasing agents because the franchisor works to set up associations and relationships with these larger prospects while, again, the owner/operator is on his own. 

It’s not that the independent can’t get on the “preferred vendor” or similar lists. It is simply that it will take much more time and effort (in most cases, considerable time and effort) while the franchisee needs to invest minimal effort on this important task since the bulk of the work has been done by the franchisor.

Building your business model

We usually think of this discussion in terms of a start-up, where the prospective business owner considers the business model that might be best for him. But a case can be made for an independent owner/operator switching from the current business model to become a franchisee, especially if the owner is not a strong marketer or manager. 

The franchisor’s marketing and management assistance can be of significant help for all or many of the reasons mentioned previously. The downside of this is that the independent will need to give up some of his independence and begin marketing and managing “the company way.” Which, if we are being honest, will be difficult for some people to do.

A unique twist

Another business model an owner/operator could consider is to buy a franchise in a non-competing, but allied, field. An example is an independent carpet cleaner buying a window washing, maid service or janitorial franchise. This gives the owner immediate expansion by selling a new service that is compatible with their core business and they can sell to their existing customers without taking business away from their original business. 

Once the business is set up to offer the new service by being properly trained to do the work at a high level of quality and to promote it properly, they can kick-start the new service because of the franchisor’s assistance.

It stands to reason that the owner/operator, who has earned the trust of his customers, can easily sell the other service(s), especially since, in most cases, a franchise’s marketing material is much better than the independent can create on their own. 

Obviously, it would be foolhardy to assume that all of their customers will buy the new service but, if the new service is compatible with the demographics of the customer base, the owner can assume that his customers are already in the market for the new service. And, when the customer knows about the new service, will probably purchase it from their trusted vendor.

Careful decisions

Be aware that changing from an independent to a franchisee or adding a franchise to augment your current service offerings must be pursued with caution because it will be a life-changing event. 

It is critical to have an attorney who concentrates on franchise law review every line in the franchise agreement and to advise you on all the “whereas” and “party of the first part” text so you know what you will be getting from the franchisor and what your responsibilities to that organization will be.

Have your accountant create pro forma profit and loss statements and cash flow statements so you understand what you will need to do to reach break-even and profitability goals. Then you will need to integrate these possibilities into your current operation and develop timelines to reach some important milestones.

If you are seeking substantial growth in your business, it might be worth your time and effort to investigate purchasing a franchise.

It could be the fastest and easiest path to building a larger, more profitable company.

Larry Galler specializes in coaching owners of small businesses to grow their business through effective marketing, customer retention programs and systemizing their business practices. Explore how he can help you during a free coaching session by calling (219) 464-9463 or e-mail Larry@LarryGaller.com. Visit his website at www.OneYearToGreatness.com.

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