10 Reasons Why Companies Franchise

Franchising is big business in New Zealand, with some 590 franchise brands representing a diverse range of industries. Around 75 percent of them are homegrown, including MTF (Motor Trade Finance); Columbus Coffee; Four Square, Pak’n’Save and New World; Harcourts; Signature Homes; Green Acres; Burger Fuel; Laser Plumbing and Electrical; Stirling Sports; and Mitre 10.

Some started franchising when they only had one or two local operations, while others may only have franchised after building 20-50 outlets with full national representation. Some franchised the whole business, others just one division or even a particular role (eg. a mobile technician). Some companies retained company-owned operations in one area, while franchising in other locations.

All of these are valid alternatives as long as they are underpinned by a solid business concept capable of driving strong returns for franchisees and creating an increasingly valuable franchisor business over many years. Franchising is not a short-term strategy.

Why do companies franchise?

Companies franchise their businesses for a range of reasons. Examples include:

1. Wanting to grow business size and value. Franchisees often generate stronger unit-level sales than managed units.
2. Accessing growth capital for additional units – franchisees invest the capital required for new unit establishment.
3. Releasing capital through the sale/conversion of selected company-owned units to franchisees.
4. Unit-management incentives. Because of their investment, franchisees are often more motivated to make their units successful to build a strong income and business value.
5. Overcoming human resources challenges. Franchisees take responsibility for growing and managing their own teams.
6. Building purchasing advantages, from buying as a larger group.
7. Marketing advantages, from harnessing economies of scale in marketing development and placement.
8. Developing better strategy, by involving motivated franchisees in business model research and testing.
9. Reducing the risks associated with expansion, through franchisee investment and ownership of local operations.
10. Creating internal growth opportunities, by providing high-performing staff with the opportunity to become business owners.   

Comprehensive franchising planning 

While these are good reasons to explore franchising, it’s not suited to every business. ‘If projected returns aren’t sufficient for all parties to earn a reasonable return, franchising may not be feasible,’ says Dr Callum Floyd, Managing Director of Franchize Consultants, who have been helping small and large companies since 1989. ‘That’s why you need a dedicated and comprehensive planning, assessment and preparation stage led by a  competent franchise consultant prior to preparing a franchise agreement  or recruitment material.

‘This will help structure the franchise system properly, assess likely returns to the franchisor and franchisees, establish a proper franchising infrastructure and train the franchisor in how to be a successful franchisor. The time to do this is before you start to put time and focus into the project. Get it wrong and you won’t know until your first franchisees are on board. Get it right, and you will have a solid foundation for success.

‘Contact Franchize Consultants to find out how we can help you.’   

See this advertorial on page 33 of Franchise New Zealand magazine Year 32 Issue 2

Contact details for Franchize Consultants

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We welcome links from other websites to this article. Please note that this article is copyright © Eden Exchange NZ Holdings Limited, Franchise New Zealand magazine and Franchise New Zealand On Line. While it may be downloaded for personal use, no part may be reproduced on any other website, in electronic or printed form or in any other form whatsoever.