Challenges are part of every entrepreneur’s journey and it is through these that their businesses grow stronger and become successful. While continuous growth is critical to a business, managing risk is also an important aspect to creating a sustainable enterprise.
Franchising, while not risk-free, allows you to build your business while conserving three of your most valuable resources: your capital, your time and your organization.
1. Spreading the risk in capital
Unlike opening company-owned outlets, you can grow the number of your stores through franchising without putting out your own money or borrowing from a bank as capital.
Each franchisee invests their own capital to buy an outlet in your chain and thus reduces the risk of financial loss from only one source. In fact, instead of spending capital for every store you open, you receive franchise fees, royalties and marketing fees that allow you to build a fund to reinvest into the business and support your franchisees. Through franchising, you can still meet your goal for brand growth by utilizing the capital from your franchisees and achieve a win-win formula at both ends.
2. Expansion of management bandwith
A sought-after characteristic when hiring managers for your business is having an owner mindset. Your managers will deliver the best results and save you from worrying all day especially during economically challenging times. They may be perfect for any type of business yet unfortunately, they are not easy to find.
Through franchising, you are assured that each franchisee is highly motivated and has a strong sense of ownership that would make them the best managers and partners as you grow your brand. As owner-managers, they are not only looking at the next pay check, but are more focused on the long term growth and sustainability of the business.
3. Decentralized staffing
Franchising your business will free up most of your operational responsibilities by having them delegated to your franchisees. This will allow you to focus on growing your brand, creating new innovations, managing company-owned outlets and guiding a handful of franchisees who then manage their own teams. They will oversee the management of their own stores including payroll, schedule, and product inventory while following operational standards, systems, and policies set by the franchisor.
A large network of stores and more franchisees to work with will give you more flexibility to develop strategies to bounce back after a crisis. The larger network you have, the more likely you will be able to meet the demand of the market when the crisis has subsided. This gives you the opportunity to utilize all your outlets, company-owned and franchises, and work with a motivated team in repositioning yourself for market leadership and start becoming profitable again.
Sam Christopher Lim is the CEO of Francorp Philippines; Co-author of 12 Strategies of Franchising; President of U-Franchise Sales & Management; and Chairman for ASEAN Integration of the Philippine Franchise Association.