A lack of access to capital is a common issue that restricts small business from expanding. The last couple of years have been difficult times for many businesses, with the global financial crisis, the rise and then fall in unemployment and the credit squeeze – particularly for SMEs. Some businesses have struggled to continue (and some unfortunately could not continue) whilst others have flourished.
Current economic climate poses opportunities for many businesses to grow and expand but limited access to capital often holds them back. Franchising however is one method used by entrepreneurs to expand their businesses and seize market share. The franchise model works on replicating your business and having franchisees use a combination of their capital and your business concept to expand market share. When done well, franchising is an extremely effective and profitable (for the franchiser and franchisee) method for growing market share.
What you need to look for
So what are the key elements to successfully franchising a business?
- The franchise must be an extension of a successful business — there is no future in franchising a failure
- Franchising must be an appropriate strategy that fits the goals of the existing business — it is a tool which facilitates meeting those goals
- The business must be capable of replication — it must not be based on a particular location or the goodwill of a particular person — it must be able to be cloned
- The franchiser must have sufficient capital to develop and operate the franchise model — it should not be used as a way for desperate business owners to raise capital
- The franchised business must be viable for franchisees, as well as the franchiser.
What you need to do
If these elements exist then the foundations may be there to develop a franchise model which allows you to grow your business and seize market share, in conjunction with franchisees who contribute their time, effort and capital. Most lawyers are more than happy to have no obligation consultations with prospective franchisers regarding the development of a franchise model. While an exciting concept, there are many pitfalls for beginners and so there is no substitute for commencing the journey with sound, experienced advice and the right documentation.
Adapted from an article by Peter McLaughlin and Lucas Hewlett of Redchip Lawyers