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Franchising as a way to scale a business

Scaling a business through franchising is a system that requires quality preparation. Without a clear plan, you will simply lose time and reputation. In this article on LLC «ElectraQuix» website, let's break down how to properly build a franchise so that the business grows, not collapses.

What is franchising
Franchising is when you give another entrepreneur the right to use your brand, business model and technology, and he pays you for it. He opens a business under your name, pays a lump sum and royalties, and you help him at the start, support and quality control. The franchisee invests his money, so he is motivated to work efficiently. Franchising is profitable because it allows you to scale quickly without huge investments.
When you can't scale through franchising
If your business isn't ready for this step, franchising will bring more problems than benefits. Here are the key signs that it's early:
  • The business is unprofitable. Scaling losses is the worst thing you can do. Achieve steady profits first.
  • A mess of processes. If you don't understand how your business works yourself, how will you teach it to franchisees.
  • No financial cushion. Expansion requires money. If there is no reserve for at least 3-6 months, any problem in the process can lead to collapse.
  • No clear strategy. Who is your target audience? What are the business standards? What kind of support will you provide to franchisees? Without answers to these questions, scaling is doomed.

How to scale the right way

If you're sure you're ready, here's what you need to do before launching a franchise:
  • Financial model. Calculate exactly how much it will cost to launch a location, how much the franchisee will earn, and what expenses await them.
  • Break-even point. Determine at what income the franchisee will stop working in the negative.
  • Franchisee support. Are you ready to give the franchisee step-by-step instructions on how to start up? Will he have training, marketing, access to a supplier base? If not, he will fail, and your brand will suffer along with it.
Mistakes that make a franchise fail to live up to its potential
  • The franchise is sold too soon. Many entrepreneurs think that if they have a profitable outlet, they can sell the franchise right away. In reality, the business has to be tested in different environments.
  • There are no clear standards. If in one branch the service is excellent, and in another disgusting - customers will be disappointed in the brand.
  • Weak marketing. The franchisee expects you to help him attract customers. If marketing doesn't work, he'll shut down and your network will start to crumble.
  • Unwillingness to be in control. If the franchisee does things his own way, the brand loses value.
How to make a franchise successful
  • Create a strong UTP. What makes your franchise different from your competitors? Why should partners choose you?
  • Develop a quality contract. It should be clear, honest and protect both parties - you and the franchisee.
  • Prepare presentation materials. The franchisee is buying not just a business, but an opportunity to earn money. Prove to him that it is real.
  • Properly count the money. How much does the franchisee pay? What are his expenses? Will he be able to make a profit?

If the business is not stable, you don't need franchising. Without a clear strategy and control, your franchisee will not succeed, and the reputation of your brand will suffer. But if everything is well prepared and well thought out, you can quickly start earning money from your partners.
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