What are the risks of franchising my business? It’s doing well and have expanded to several branches already.

While franchising has many advantages, the business model doesn’t suit all kinds of businesses and business owners.

While the first reaction may be that franchising your business is expensive – developing business plans, legal documents, operations manuals and marketing material cost money – these costs are quantifiable and recoverable with the sale of franchises in the long run.

The speed of growth is where the risk emerges. Franchises are effectively annuities, providing you with royalties over a long period of time. Franchisors looking for hyper-growth in the early stages see more risk because of the need to hire more staff to sell and manage the franchises and of course market them. Improperly managed, this can be to the detriment of the core business established.

More often than not, franchisor failures can be traced back to failed franchisees. Make sure you vet your applicants carefully to see that they’re capable of managing each unit to your level of requirements. Poor performing franchisees require more support and resources from you, and in return you get less or almost nothing in royalties.

Tracy Lee Nicol
About the Author
Tracy-Lee Nicol is the managing editor of Franchise Zone Magazine and deputy editor of Entrepreneur Magazine. She studied her Masters degree in Art History and Visual Culture at Rhodes University and spent the next two years working and travelling in Asia. Her love of people, business and teaching is reflected in telling the stories of entrepreneurs, franchisees and franchisors, inspiring others to take the leap to being their own boss and bringing about positive change in South Africa.

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