Small business franchise – Two sides of the same coin
The franchisor’s point of view
From the outset the business owner who embarks upon a small business franchise as an expansion model is taking a calculated risk. There is a significant upfront capital investment to get the business ready to recruit potential franchisees. That initial capital outlay is not usually recovered for a year or two, if not longer.
In addition to the franchisor’s capital investment it is equally important to understand the significant time and human resource commitment that is required to franchise a business in Thailand. It is a steep learning curve for the new franchisor and it is essential that they receive the support of experienced and knowledgeable franchise professionals to steer them along the right path.
For the would-be franchisor at some point control over every aspect of their Thai business must be released, which can be a daunting prospect. There must be a true commitment to franchising as the business format for the company.
When selecting new franchisees, the franchisor needs a good marketing plan, to be clear on what they are looking for and a robust selection process. Franchisors must be ready to support their franchisee network from day one and the early months of trading is where they are most likely to need support.
Franchisees will inevitably take time to build their business and therefore income, so initially the fees payable to the franchisor are likely to be at their lowest. This income will build over time as the franchisee’s business matures and more investors are recruited into the network.
Once the initial growing pains have been overcome, there are considerable rewards for the business owner that chooses expansion through franchising. It is a development option which requires less capital because the franchisees use their own finance to set up additional outlets.
A successful franchisor can run their network with fewer employees than would be the case with the same business operated as a corporate owned chain. This provides a better return on capital despite the fact that in most cases individual corporate owned stores are more profitable for the franchisor than a franchised store.
Franchising also allows a more rapid expansion through the combined effect of motivated owner managers, the use of the franchisee’s capital and using standardized business systems.
A franchisee’s prospective
It is the view of many experts that investing in a well-established, tried, tested and proven franchise brand provides the prospective franchisee with a less risky route into self-employment. They receive initial training and ongoing support from the franchisor as well as beneficial supplier arrangements and brand recognition which they wouldn’t get it they were setting up their own independent business from scratch.
Investing in an established franchise will as far as possible reduce the inherent risks in setting up a new business, although there are no guarantees of success. It is important to evaluate the strength of the brand and the long term viability of the franchise. Unproven systems that have not operated a successful pilot scheme carry a significantly greater risk to the investor.
There is no substitute for thorough research and investors should leave no stone unturned in assessing their options. There are hundreds of business opportunities to choose from however not all franchises offer the same level of training and support.
There are inevitably going to be lifestyle changes when people start their own business, which could include working longer hours, added pressure and stress and financial uncertainty, particularly in the early years. They must have the full backing of their close family before becoming their own boss. Running any business – whether it’s a franchise or not – requires self motivation and as rewarding as it can be, it will always be a challenge.
Following the initial training programme the franchisee needs to put into practice what they have learned. It is at this stage that they need the most support from the franchisor and the Head Office team. If they follow the advice and guidance provided they should be well set to build a successful business over time.
Once the franchisee has survived the start up stage their confidence grows as they establish their customer base. They become less reliant upon the franchisor for guidance on how to operate the business although they have the comfort of knowing that advice is just a phone call away.
Sometimes franchisees start to resent paying the management services fees to the franchisor however they shouldn’t forget that they wouldn’t have been able to reach this stage so quickly without following the operating systems and having the backing of the franchisor.
Franchising is a partnership between the franchisor and small business franchisee. It isn’t necessarily an equal partnership however both parties need to be successful for the partnership to work. The franchisor directly benefits from the success of their franchisees through fee income and it is therefore their responsibility to provide the best possible training and support to their network.
Of course, franchising is not right for everyone. For people who value independence or want to run a business without restrictions or to re-invent the wheel, franchising might not be the right option.
Head of Franchising
Lloyds Banking Group
Tel: 07802 324018
Richard heads up the Lloyds Bank franchise team and is a regular contributor to trade publications and national press. He regularly speaks at franchise seminars and exhibitions.