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What's so special about franchising?

Posted by Carolyn Dufton on 2 October 2008
What's so special about franchising?

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.

Scenario one

EXAMPLE ONLY using the symbol x to depict a unit of currency

Expenditure                                       Income
Annual lease costs         x 
Fitout costs                       x 
Stock                                  x 
Total expenditure            $3x          Total income                NIL

Scenario two Franchisor opening a new franchisee run operation

Expenditure                                       Income
Annual lease costs         NIL           Annual royalty fees     x
Fitout costs                       NIL           Franchise fee              x
Stock                                  NIL 
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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Carolyn DuftonAuthor: Carolyn Dufton
About: Carolyn Dufton Dip. Bus (Franchising) heads the team as the owner and manager of franchisingplus. Carolyn has a wealth of small business experience, and many years of hands on franchising experience.
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Tags: Franchisee Franchisor Franchising

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