How franchising can help expand your business

A franchise/franchising is one way that holders of well known brands, especially in the service industry, can earn extra revenue without necessarily having to expend a large capital investment.

It’s also a means of providing entrepreneurs a stake to participate in running the business of well known brands.

It’s as simple as the franchisor allowing interested parties to use the franchisor’s business concept and techniques in exchange for a percentage of the revenues earned by the franchisee and in some cases in exchange for royalties.

Franchises have become very common internationally, with franchises even being auctioned on the net.

Kenya is catching up fast with owners of well known restaurant brands opting for franchising rather than expend large sums of money expanding.

Franchises are suitable where the business concept is unique.

For example, in the entertainment industry.

Let’s assume that there is a well known entertainment event in the UK that attracts wide viewership.

A local entrepreneur would rake in millions in profits if he bought the franchise from the original event owners and held a similar event locally.

This is the concept known as event franchising which is simply a method of duplicating public events held in other geographical areas while retaining the original mission, concept and logo.

For example, the Miss World (K) beauty pageant is most likely an event franchise from the original body.

The event has most likely been franchised in several countries globally and its concept of beauty with brains upheld.

If some other person other than the franchisee held a similar event locally then they would be liable especially for breach of intellectual property laws where the franchise is exclusive.

Buying an exclusive franchise is a good way of maintaining a wide market share within a specific geographical area.

Franchises are also good for businesses with wide geographical appeal, for example health services.

Rather than expend a lot of capital trying to attain global expansion, a franchise would do the trick with much ease to the franchisor.

All that is needed is to link up with local entrepreneurs and train them on your business concept and you enter a new market.

This is especially attractive for businesses that have reached maturity and would wish to seek out new markets.

Therefore the business should be relatively easy to operate and easy to duplicate.

This is because as the franchisor you will not participate in the day to day running of the business.

All you are concerned with after training is profits.

Franchises are common in the food and beverage industry, entertainment, health, clothing and events.

With clothing franchise, a fashion designer may franchise entrepreneurs to stock his products.

Critical factors to the industry like style and layout of the shop are contained in the franchise agreement.

Some franchise agreements may have some of the most seemingly petty clauses like location of the shop and physical attributes of the shop attendants.

Most fashion houses are located on high end streets and the franchisee would also have to adhere to that concept as this is a critical success factor in the industry.

Raw materials

Franchises are attractive to both the franchisor and franchisee.

Perhaps a main downside for the franchisee is that he loses control over operations.

The operations manual has to be adhered to strictly; for example issues such as staff uniform has to be totally adhered to.

This has cost implications to the franchisee, especially where the franchisor supplies the raw materials.

Particularly so if the franchisee can access cheaper raw materials.

Confidentiality is a major issue in franchises and confidentiality agreements have to be signed containing restrictive clauses in favour of the franchisor.

Such covenants may limit a franchisee from opening a similar business within a certain time-frame after expiry of the franchise.

The franchisor has a duty to train the franchisee’s staff.

The area of operation under a franchise is regulated and the agreement also stipulates if the license is exclusive or not.

In as much as the franchisee may feel the pressure of having to reach set targets, if the business is vibrant and profitable he also rakes in a lot of profits.

The books of account have to be kept at a standard suitable to the franchisor as the consideration for this arrangement is a percentage of the revenues earned.

Franchises are therefore attractive to both parties as well as the consumers, especially the upper class for whom quality is a central issue.

Upper class consumers in third world countries are highly restrained geographically in reaching supply.

An international franchise would bridge the distance and save many buyers shopping trips abroad to meet their luxurious needs.

International franchises are also good for the economy due to tax earned, increase of employment and building of infrastructure and utilities.

In some sectors like health it boosts provision of vital services to the citizens.

While there is no specific legislation on franchises, the Common Law of Contract regulates the conduct between the parties therefore issues like capacity of the parties, consideration and a meeting of the minds are central.