What Is Franchising

Franchising is the process by which an individual establishes a relationship with a successful business to use its systems and capitalize on its existing brand awareness to obtain a quicker return on investment.

One of the many benefits of franchising is that you are entering into a proven system and brand name.  To remain successful, companies must respond to the challenge of not only achieving, but also maintaining growth.

Two methods of growth:

Franchising Organic Growth
Capital Investment Someone else’s money Your own money
Initial Costs/Time Lower Higher
Building & Equipment Franchisee responsibility Your responsibility
Maintenance & Repairs Franchisee responsibility Your responsibility
Day-to-Day Franchisee responsibility Your responsibility
Hiring/Firing Franchisee responsibility Your responsibility
Purchasing Power Great Limited
Risk Accelerated Slower
Profibility Accelerated Slower

Franchising, utilizes other individuals’ capital and resources to aid in expansion of the business.  The best way to think about franchising is that it is a system focused on pooling resources and capabilities.  Typically, a license is granted by the franchisor to the franchisee for the development of a business, an operating system for the business and a trade identity under which the business will operate.  Additionally, structural emphasis is placed on the franchisee such as maintaining specifications, standards and operating procedures that will reflect the franchisor’s format, system and quality and service standards.

Organic growth, in short, means that a company is using its own capital to expand the business.  Furthermore, the company will be responsible for all aspects of setting up the business, hiring and recruiting human capital, investing in machineries, etc.  The risk associated with organic growth can include expansion outpacing the ability to effectively manage, stretching resources too thin, capital strains, or a divergence from the business’ core mission.