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If you are considering franchising your business, you may want to consider alternative expansion options before settling. One alternative approach is company-owned expansion. This method allows owners to retain complete control of new units. This article will help you understand the differences between the franchising model and expanding your business through company-owned operations. The article will also explore the advantages and disadvantages of each method.
Methods of Business Expansion
Franchising is a method of brand expansion. A business owner franchises their business by creating a franchise agreement. A third party (the franchisee) will sign the agreement and open an independent business unit that uses the franchised business’s operating systems, processes, and trademarks.
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There are many methods of business expansion beyond franchising. One of these methods is company-owned expansion. This approach means the business owner exclusively owns their business as it expands into new locations. Compared to franchising, the critical difference is that the business retains ownership of the whole business and brand through company operations rather than having third parties who own franchised units.
Advantages and Disadvantages of Franchising
The following table outlines the pros and cons of franchising as a method of business expansion.
| Advantages | Disadvantages |
| Franchisees operate their units independently of the franchised business. Daily management of franchise units is the franchisees’ responsibility. | Loss of complete control over employees, the brand, and daily business operations. Franchisors can mitigate the risks associated with loss of control by: + maintaining a good working relationship with franchisees; + carefully vetting prospective franchisees; and + setting clear roles and responsibilities in key documentation, including the franchise agreement and the operations manual. |
| There is a possibility for rapid growth when a business owner franchises their brand. Setting up new units is a case of a prospective franchisee signing a franchise agreement, providing capital, and the franchisor helping them set up and operate their new unit. | Franchising does not mean the franchisor can be hands-off, as it requires administration, brand, and franchisee management. Franchising a business also entails costs, for example, legal expenses and costs to provide franchisee training and ongoing support. |
| Franchisees tend to be motivated individuals who want to succeed as they have invested their capital into setting up their business. | With any business agreement, there is a risk of future legal disputes. The help of a lawyer when franchising a business can lower this risk. They can craft your franchise agreement and other relevant documentation, mitigating the risk of future disputes. |
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Advantages and Disadvantages of Company-Owned Expansion
The following table outlines the pros and cons of company-owned expansion.
| Advantages | Disadvantages |
| Business owners maintain complete control of their expanding business. They keep all profits and own all the business’s assets. Some see this as a significant advantage compared to franchising, where the franchised business owner is entitled to only a percentage of the franchisee’s profits. | There is an increased risk and responsibility. Therefore, the business owns and is liable for any losses or errors. |
| Increased managerial and brand control as all management is the company’s responsibility. | Higher management costs. |
| The value of a completely company-owned business may be higher than that of a franchised business that a franchisor has split into several franchises. | Company-owned can be a slower form of expansion compared to franchising. |
When to Consider Alternatives to Franchising
Franchising can work for those businesses that can give entrepreneurs a complete package of systems they can replicate and efficiently operate a franchise unit. For a successful franchise, business owners must have a replicable business model that their franchisees can copy into practice. For this reason, franchising will not be a suitable expansion method for all businesses.
If you think franchising might not be the right choice for your company, consider the alternatives. For example, you may want to consider alternative expansion methods beyond the geographic, such as developing your range of products and services or moving into a new industry niche.
Key Takeaways
If successful, franchising can be an excellent way to scale a brand rapidly. This method allows franchisees to open their own units, replicating your business’s model. Franchisees own their units and operate separately from the franchised brand.
An alternative to franchising is company-owned expansion, which allows owners to retain complete control over their expanding business. Both methods are tried and tested, but your choice can depend on many factors. These include whether you are seeking business expansion that is not geographically focussed or if your business model is not easily replicable.
If you need legal assistance growing your business using the franchising model, LegalVision’s experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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