Is franchising the best way to expand my business?

Before taking the leap into franchising your business, let’s look at some of the various alternatives to franchising. Franchising is an expensive undertaking, so a different expansion strategy might be a possible route to consider. We will very briefly look at 5 other business expansion vehicles compared to franchising:

o Company-owned expansion
o Joint Ventures and Partnerships
o Independent Sales Representatives
o Licensing
o Distributorships/Dealerships
o Franchising

1. Company-owned expansion
Advantages: Basically, branch offices with control over all aspects of the business.
Disadvantages: Heavy capital outlay, management and employee issues, local state regulations, and ownership liability to third parties, direct financial impact of failures.

2. Joint Ventures/Partnerships
Advantages: Fewer regulatory requirements, greater control and flexibility, synergies of combined business skills.
Disadvantages: Moderate capital outlays, joint and several liability, no up-front payments, direct financial impact of failures, local state regulations.

3. Independent Sales Representatives
Advantages: Independent agent, not an employee, fewer local state regulations, no direct impact for representative’s failure to make sales (hire other salespersons as needed).
Disadvantages: Agency liability, potential tax treatment as an employee, non-exclusive relationship with product.

4. Licensing
Advantages: Lower capital outlay, fewer local state regulations, licensing and royalty fees, minimal oversight and staffing, minimal direct financial impact for failures.
Disadvantages: Minimal controls, teetering on the franchise vs. license ledge (the inadvertent franchise), monitoring issues, “at-will” relationship.

5. Distributorships/Dealerships
Advantages: Lower capital outlay, fewer local state regulations, increased market penetration, potential sharing of some advertising costs, minimal direct financial impact for failures.
Disadvantages: Minimal controls, teetering on the franchise/employee ledge (the inadvertent franchise/employer), monitoring issues, potential termination and renewal, local state regulations, no fees or royalties per se, potential non-exclusive relationship with product.

6. Franchising
Advantages: Greater control of quality and uniformity of brand, franchise fees and royalties, lower capital outlay, motivated operators, enhanced trademark value, no employee burdens, no direct financial impact for failures, increased market penetration.
Disadvantages: Initial costs of setting up system and annual updating costs, significant state and federal regulatory requirements, audit expenses, employing a franchise staff, monitoring of quality and uniformity, greater local state regulations.

The foregoing is not intended to be exhaustive analysis of advantages and disadvantages. You should consult your business attorney or consultant for an in-depth discussion of each business format. However, you should consider whether you and your product might be better suited for an alternative to franchising. In fact, you might look at one or two of these alternatives as stepping stones to ultimately franchising.

Please call me at 407-701-7530 for a free telephone interview.
B.F. "Biff" Godfrey, Esq.
B.F. GODFREY, P.A.
2601 Technology Dr.
Orlando, FL 32804
(407) 701-7530 (off)
(407) 578-2347 (fax)
biff@godfreylegal.com
www.godfreylegal.com