Let’s assume the following: you are a person full of energy who successfully sails entrepreneurial waters. You have a great business idea and concept that your customers like, and in addition, it has proven to be very profitable and successful in the long run. You have invested a lot of energy to raise your brand to the current level, you have become aware that it has the potential to further strengthen, evolve, expand but, at the moment, you do not have the necessary resources, and by that, we do not just mean financial resources but also your time and human resources.
It is clear that any business expansion implies your active presence as the creator and owner of the brand. Strategic dilemmas arise: buy or rent business premises, hire and train new employees or just train existing ones, provide the necessary stocks of goods, manage, supervise… And all this requires money. You may use your own funds or you may need to borrow them by involving an investor. Or you will simply give up on the idea that your business is growing and developing and be content with what you currently have. If the initial assumption about you as an entrepreneur is correct, the option of “being stuck in the same place” was not even in your considerations.
Steps if You’re Expanding Your Business in a Standard, Already Familiar Way
You can hire more people.
What does this idea look like to you, as a pragmatic entrepreneur? Can you rely on those people from the beginning? Will they withstand the pressure of business expansion or will they give up at, for you, a crucial moment? Will you, again, as when you started, deal with daily operational problems, but this time, on ‘multiple battlefields’? How much will it all cost? Think of money and time.
You can open another sales location or business unit.
You can add another car to the fleet vehicles for the needs of a new field salesman. How many resources do you need to invest? Are you sure of the plan that the investment will return and in what period? Do world trends go in your favor? Maybe what you are doing is very innovative, different, and attractive to the market but what if your funds are limited due to the impossibility to ‘stay in the game’ and someone with more resources can use and copy your idea? There is another little thing that we often overlook – time as a resource that is not renewed.
There’s Another Way – Franchising
How can a franchise business model help you and what strategies can be applied to build passive income as efficiently as possible? We all know roughly what it means to franchise your business. A franchise relationship is a relationship in which you, as someone who has developed a business and has all the ‘know how’ about it, rent your name for a certain period of time, as well as that ‘know how’, in exchange for paying royalties, entrance franchise fees, etc. This makes you a franchisor.
You know all the secrets of your business, you have a strong motivation, and you put effort into the success of the business of the future entrepreneur to whom you sold the franchise. He has local expertise and reduces your risk of doing business in an unknown market. That synergy, with everything it brings, also brings business sustainability. In addition, the success of each franchisee provides you with royalties. So, it is in your best interest that each of your franchisees makes a profit.
While the entrance fee, which you charge when signing a franchise agreement, is something that actually compensates for your already invested money in building the franchise business model itself, royalties are what all entrepreneurs dream of – the so-called passive income. Trust us – it means a lot. There is no greater satisfaction than when you see amounts on your account that come successively per month, and you generally do not waste any time or energy on them.
In the franchise way of doing business, the entrance fee is not as important as the royalties that grow with each newly sold franchise and make up your passive income. But in a franchise relationship, that is not all. In most franchises, a percentage is taken for joint promotion and marketing. Although it is not your direct income as it only serves the purpose of promotion and marketing, it also belongs to your income as a franchisor, given that this money strengthens your brand and market dominance for which you do not have to invest money.
Speaking of marketing, even though the franchise formula has been proven to work, many franchises struggle with building a proper website and maintaining the online presence of their locations. There is a solution for that and it lies in franchise website builders. By utilizing one of those, both franchise owners and franchisees can create a website that strikes a balance between brand consistency and individuality. You can choose a ready-made website template or you can create a custom-designed template where you can ‘drag and drop’.
Most Frequent Questions Entrepreneurs Ask About Franchising
The first question is: How franchisable is my business? And the second question is: Why would I teach someone else to do my job and make money on my ideas?
For the latter, we must say that the franchise business is the sharing of knowledge and success and, as with love, it is multiplied by sharing. As an answer to the first question of whether your business can be franchised, we must say that almost 90 % of business concepts are franchisable, if not as a whole then in some part of it. It is generally not a problem to turn them into a franchise but through the creation of a franchise business model, a model should be created that will enable the business to reach its full potential by franchising because your passive income also depends on it.
Designing a franchise is a complex and modular process and it, regardless of everything, requires the help of experts. The first step is a basic assessment of the franchise, which is mostly free, while the second step is an assessment of the franchise potential of the business, which is much more demanding on both the side of consultants and entrepreneurs but the picture at the end is worth the effort and money.
Expansion as a ‘Product’ of Franchising
Franchising allows expansion without debt or spending free capital because the money invested is, in fact, the money of the recipient of the franchise, i.e. franchisee. The most common obstacle to expansion with which today’s small businesses face is the lack of free money to make it possible. The franchisee provides all the capital needed to open and manage the unit. By using someone else’s money, the franchisor can grow greatly without debts and risks.
The franchisee is a small business owner and is personally motivated to manage his business unit carefully and dedicatedly. Another stumbling rock many entrepreneurs face in looking to expand their business is finding and retaining good business unit managers. Very often a lot of time is spent looking for new managers and their training, and employed managers are only employees who may or may not have a true commitment to their work. However, franchising allows these problems to be overcome because the manager of the business unit is also the owner of a small business. Your franchisee will be the owner, and often with all the life savings invested in the business. His compensation will mainly be in the form of profit, which raises the level of motivation to the highest.
Take Over the Market Before the Competition Realizes What’s Going On
It takes time to open each of the business units, and franchising is an efficient way to quickly take over the market. You can open several business units at the same time without disturbing your daily business. The franchisor will use the financial and human resources of the franchisee, which opens the possibility of rapid expansion while maintaining a high level of service quality.
You do not have to increase the number of employees, no matter how your business grows. Franchising enables the growth of the system without increasing the number of employees and the costs it incurs with the franchisor himself. Simply put, the employees in the franchise units are not your employees, so the liability of the franchisor towards them is less. A large number of responsibilities are transferred to the franchisees, while the franchisor can focus on the growth of quality and innovation, instead of the quantitative growth of the organization itself.
Everyday management is easy, regardless of the size of the system itself. Regardless of the number of franchise units, the franchisor is not responsible for the individual management of each of the units on a daily basis. At the micro-level, sick leave, employee vacations, employee replacements, selections, salaries, and competition monitoring is something that the franchisee does, so the franchisor can focus on improving and developing the wider business picture.
Profitability Is Increasing
The size of the entire system under the auspices of a single brand is growing but the costs and risks of the franchisor itself are not growing because of that. The franchisees are personally motivated to make as much profit as possible, and part of that profit is transferred to the franchisor.
The value of the brand and the value of the franchisor’s company are growing. The combination of rapid growth, profitability growth, without increasing costs and risks, leads to an increase in the value of the franchisor’s company itself. A stable franchise system instills trust, both with clients and business partners, thus increasing the value of the brand itself.
Easy Conquest of New Markets
A high degree of motivation and knowledge of local circumstances, habits, and mentality of customers allows the franchisee to adjust the business and make a profit in your business unit, that if that business unit were opened by the franchisor himself.
And you have minimal business risk. Legal and economic responsibility is on the franchisees, so the financial risk for the franchisor is lower. A good and comprehensive franchise agreement defines in detail the relationship between the recipient and the franchisor and minimizes the risks and possible problems in the cooperation of these two parties.
If, for example, you are a small entrepreneur, then you have that urge in your heart to gain a position in which you can have the so-called passive income. You all felt at some point that you were tired of pushing rocks uphill and of everyday business stress. Everyone is aware that a passive income exists in theory but there are very few who manage to realize that dream.
Franchising your business is one of the models of earning passive income. Let’s not be fooled, there is no such thing as a completely passive income. You need to work hard for everything and lay a good foundation, and then bear fruits of your labor with minimal effort.
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