Franchising, when executed properly, can be the most powerful method of building a business empire. It is a perfect example of the power of leverage.
Every franchisee is a self employed person in their own right. Every franchisee, as a small business person, is equally motivated to succeed in their own business within the franchise system. The Franchisor has created a win-win situation!
A business that franchises should ideally be driven by a desire and a need to service clients. Franchising can sometimes be seen as the only effective expansion method as even the best employee rarely matches up to a motivated self employed franchisee.
Franchising is expansion with minimal cash investment.
Compare these two scenarios; expanding a company operation opening a new retail outlet.
EXAMPLE ONLY using the symbol x to depict a unit of currency
Annual lease costs x
Fitout costs x
Total expenditure $3x Total income NIL
Scenario two Franchisor opening a new franchisee run operation
Annual lease costs NIL Annual royalty fees x
Fitout costs NIL Franchise fee x
Total expenditure NIL Total income $2x
This simplistic example speaks for itself. It certainly demonstrates what is very special about the power of franchising as a cost effective method of expansion.
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