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Buying a Brand: Franchising

Monday, September 30, 2013   By Mike Reddy



In the aftermath of global downsizing, many out of work or dissatisfied employees are considering franchising. But what do these folks know about running a successful business?

In fact, the best candidates for franchising are proven, successful small business owners ready to expand or take on a new challenge.

Firstly, there are two main kinds of franchising to consider - product franchising and business format franchising.

Product franchising provides a distribution network for an existing product. The outlets operate in their own way and benefit from the sales of a well-known brand. The operator then benefits by limiting the competitor’s access to the market.

This is also known as the dealership model.

Business format franchising is when the franchise operates under a ‘total business concept’ - think McDonald’s. Every one has the same trademarking, corporate colours, design and layout.

Owning a franchise (in either model) means a built-in customer base, which for many small business owners is attraction enough.

With a recognised brand, customers have existing trust in your product or service.

Like any other strategic business move, franchising has major pros and cons which need to be considered on an individual basis to determine whether it is the right choice.

Buying a franchise requires a team player. You must be able to surrender control and work as a cog in a machine. On the reverse, you are your own boss and have a certain amount of freedom.

Franchisees limit their risks and lower their levels of failure, but at what cost? Many successful managers have a hard time relinquishing ultimate control and struggle with following someone else’s rules.

On the positive side, franchising also gives access to suppliers on a greater scale, providing more options when it comes to manufacturing, production, placement, etc.

It provides a cushioned advertising budget and a steady network of support - two areas that can be hard to overcome in the small business world.

One of the major disadvantages to consider is the difficultly in terminating the franchisor-franchisee agreement should things take a bad turn. A bit like selling your soul to the devil, these contractual agreements often do not work out to benefit the franchisee!

Mike Reddy is a Chartered Accountant, business coach and advisor helping businesses in Sydney, Melbourne, Brisbane and Gold Coast to easily increase their profits and cash flow. He is currently President of the North Sydney Chamber of Commerce, a Regional Councillor for Sydney North East and a member of the Institute of Chartered Accountants Sydney leadership team. As well as advising businesses, Mike presents business development seminars and webinars and is regularly contacted by the media to comment on small business matters. You can connect with him on Facebook, Twitter and Google+.