Franchising can be a wonderful way to grow a business. With the right systems, marketing, training and timing a large organization can be defined and built in a short period of time. Very quickly the U.S. landscape has become a haven for franchise companies. A part of franchising that makes it so effective is how it indirectly provides funding for a growing brand and business.
When a franchise is granted to a new franchisee, that franchise buyer makes an investment into the growing company. That investment if used wisely provides the next marketing and growth dollars needed to find the following two or three franchisees...and so on the process goes. The franchisee is in essence making and investment into the company without being given equity in the overall company management. This allows the original business owner to maintain control of the system and keep only one "chef in the kitchen".
Franchise funding is essentially the growth of the system that funds itself. Franchising literally fuels its own growth. At the same time, the franchise revenue that is created, through franchise fees paid up front and royalties paid on the back end, also funds the infrastructure of the new franchise organization. At certain points in development the franchisor should invest in training facilities, new staff to support the franchisees, advertising cooperatives, technology initiatives, supplier arrangements and other strategic moves. All of this should be funded by the growth in new revenue from franchising.
That all pertains to once the system gets started, but how do franchise companies get funded to get into the business? Franchising plays on multiples and leveraging. A good system for delivery of a product or service that is in a good market are the core elements, but if we can find ways to leverage that and create multiples, now we are talking growth. When the value of franchising is maximized, the potential is limitless. Venture Capital groups, private investors, Private Equity Groups and other investment alternatives are realistic options for exciting new franchise systems. The reason investors like franchising is that the franchise model creates multiples and can produce enormous returns for an investor. So putting together the model, business plan, projections and painting a clear picture of the franchise model is the first step, then getting it in front of the right audience is the next. Franchise endeavors get funding all the time, the plan must look and communicate the right things though.
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