How-to grow your business with “other people’s money”

How-to grow your business with “other people’s money”

by | Mar 29, 2019 | Blog, For Franchisees, For Franchisors

You’ve got a great business. You may even have a budding multi-store operation. You’re ready to move into the big time. Great! But one thing is holding you back: Cash. Or the lack thereof.

Can you grow a business without much capital?

Seems like an easy, “nope!” But maybe not. Business owners looking to fast-track growth and minimize the outlay of their capital increasingly are considering franchising.

Does franchising preserve my capital?

Yes. For even the most successful businesses, lack of capital is a common barrier to expansion. In some instances, franchising allows strong, but cash poor companies to expand without risking added debt or the cost of sharing equity. When you franchise your business, the franchisee provides the initial capital investment to open that new location. The franchisee, not you the franchisor, assumes the obligations associated with operating the new location. And, the franchisee must find a new site, negotiate and sign a lease, hire employees to assist in the operation of the business, conduct grand opening and engage in ongoing advertising, and operate the business on an ongoing basis. Not you.

If you franchise, can you still control your “brand?”

At first blush, you say, “Gee, that sounds great, but how do I maintain control over my brand?” The marketplace will ensure it because…let’s face it, customers patronizing McDonalds expect to have the same experience, buy the same Happy Meal and get the same quick service whether that burger is bought in New York City’s Times Square or Juneau, Alaska.  But you’ll reinforce it.

As the franchisor, you will ensure that your franchisees’ stores operate in the same manner and deliver the same high quality as your own locations.  You will provide training to franchisees at the outset to ensure each business undertaking gets off to the right start. Your franchise agreement will require franchisees to operate their businesses in accordance with your system standards and that agreement will include your right to terminate the franchisee if it fails to do so.

How does franchising benefit franchisees?

Why would a franchisee even consider taking on a franchise instead of starting from scratch to open their own business concept? Why would anyone want to start a business in which, as a franchisee, they incur all of the costs, must follow your rules for operation and pay you money for the right to do so?
Because you are opening the door to a fully-fleshed, tested operating concept. The franchisee gets to build out and open a turn-key operation. And because you train your franchisees on all aspects of that business – from negotiating a lease to the grand opening, the franchisee will not have to waste time and money “reinventing the wheel.” You’ll tell them how to find the right location. You’ll show them what it should look like, how to advertise to customers, how to find suppliers and much more.  The franchisee will also benefit from the goodwill associated with your brand.  In short, by franchising your concept, your franchisees will have a greater chance of success than had they started a new concept independently.

Bottom Line:  If you have a successful business and are concerned about capital requirements, consider expanding through franchising. Got questions? Feel free to email them to me, Julie Lusthaus at jl@lusthauslawpc.com  and let’s talk.

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