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Should You Franchise Your Small Business?

November 30, 2018 - 1:00 pm
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You've made it over the hump of hearing a barrage of statics about the number of small businesses that fail in their first year. You've created a brand and are now looking for new ways to spark your capital, and when scanning the how-to universe, one of the first keywords you'll encounter is “franchising.”  However, it is necessary to understand that while their significance in this American economy suggests that franchisees will succeed, a great number of them are as likely to fail within the first year, just as small businesses are when they first give it a go.

 

Benefits of franchising

There's no denying the appeal of having a prosperous trademark or brand name to help develop marketing strategies and a steady business model for your chosen sphere. Here are other underlining benefits of franchising a small business:

  • Support with marketing and training
  • Established brand, customer base and suppliers
  • Financial assistance when necessary, such as a loan  
  • Access to tried and true trade secrets
  • Less brainstorming new product development and more enjoyment of the perks that come with being your own boss

 

Drawbacks of franchising

  • Portion of gross income is paid to franchisor for duration of business relationship, reducing earning potential 
  • Limited control and flexibility in the areas of creative changes, marketing tools and branding
  • Less freedom to explore other avenues while locked into your contract with franchisor
  • The ever-present risk factor involved in a new venture

Franchising relationships can and occasionally do fail. In most cases, it is a result of an array of reasons, including an incompatible or ill-matched franchisee/franchisor alliance, a resistance to following new formulas, poor management, or a general lack of financing.

 

Weighing the risks

When contemplating the idea of franchising your small business, take some time to assess your situation and evaluate if the time is in fact right for your to franchise. Franchising can include investing tens of thousands of dollars or more, and if you're hoping for that magic pill that guarantees instant success and payout, you're probably going to be disappointed. For some business owners who have taken those scary but necessary initial steps forward to achieve financial autonomy, entering into a franchising deal might feel like a step backward. If your entrepreneurial spirit and desire to be independent is what motivated your small business in the first place, it's important to remember that franchising consists of relationships with much give and take, as is required for most any relationship.

 

This article was written by Melanie Falina for Small Business Pulse