Don’t Underestimate the Power of Financing Business Expansion Through Franchising
Too often I see new franchise companies who slap dash their franchise offering together. It is hard enough to launch a new brand with a well conceived franchise program. Going to market with a vague or confusing operating system, a weak neighborhood marketing program, inadequate training systems and legal documents not crafted to the business’ needs can be a disaster. All too often that is what the thinly capitalized franchisor does.
I believe that this happens, not because the franchisor wants to launch a flawed offering or even because it cannot afford a better conceived program. I believe it is because new franchisors – usually expert in their own business– are not expert in designing or running a franchise company. For example running a restaurant successfully requires different skills and experience than running a franchise company. New franchisors often do not understand how to design a strong franchise offering that fits their particular business.
By helping clients understand how franchise distribution works from the broadest view – “the view from 30,000 feet” – we at franchiselawsource.com help you understand the importance of careful and thorough development of your franchise offering.
The power of the franchise model of distribution is incredible. We help clients stay focused on the essential reasons for the power of franchising. Traditional ways to finance the growth of your company would include borrowing from a bank or selling stock to equity investors. In each of those situations you give up some measure control over your business and invite meddling or demanding “partners” into your company. Lenders impose covenants, require extensive financial reporting and place liens on your assets. Stockholders get to vote on who serves on the Board of Directors and who runs the company among other things. Franchise companies, on the other hand, access their franchisees’ capital without having to share power. In fact, quite the opposite is the case. Your franchise company’s growth will be paid for by franchisees investing in their franchise locations, and yet you will be in complete control.
The unique power of this model of financing growth comes from 1) the absolute control you maintain over your company and 2) the virtually unlimited availability of more franchisees and, hence, more capital. It is hard to imagine any way that Fred DeLuca could have financed the construction of almost 30,000 Subway restaurants through conventional financing methods. Instead, by growing his brand with his franchisees’ capital he has kept control of his company, kept it out of debt and grown it beyond his wildest dreams.
We help aspiring franchisors understand that the initial investment in developing a strong franchise offering is more than a quick path to modest expansion. It is a way to harness enormous capital to expand your business. Once a smart entrepreneur internalizes this message, the need to “do it right” in developing the operating system, the marketing, the training and the legal compliance is obvious. I hope that we can help you through the process of developing a franchise offering that will allow you to take advantage of this powerful financing and growth model for your business.
Scott Kern, Attorney and Founder
franchiselawsource.com
scott@scottkernlaw.com