The 4 Biggest Growth Challenges For Small Businesses and the Franchise Solution.

Starting and owning your own business is not easy; in fact, saying it's hard is an understatement. That’s why an estimated 80% of businesses fail in their first five years. The biggest challenges facing small businesses, in particular, can be summarised in four different categories. If done correctly, franchising can help alleviate these challenges.

1. Capital to fund growth

    For most small business owners starting to think about growth, this means another van on the road or leasing new premises, a full set of tools and equipment or fit-out and inventory, more employees and all associated running costs. Before you know it, you are looking at $100k - $200k+ investment and a long risky road to a return.

    The Franchise Factor

    Within a franchise system, the franchisee provides all capital necessary to open or set up a new business unit as well as the ongoing responsibility of running costs. In effect, the franchisee funds your expansion. This allows the franchisor to grow at a much faster rate and compete with larger companies for market share.

    2. People

      The cost of finding the right staff, the investment in time and resources to train them, only to lose them 18 months later, often has one of the biggest impacts on a business’s growth. Then there is the cost to your brand when you get it wrong and the lengthy and expensive process to exit them. For many businesses, human capital and compliance costs such as holiday pay, sick leave, and superannuation is the biggest overhead and most difficult to control.

      The Franchise Factor

      Franchisees are passionate, committed and invested in growing your brand. The average franchisee will spend eight years in a franchise system, whereas on average, employees only spend 18 months in a job. Owner-operators will work harder, and more efficiently, turn up on time and look after your customers as only an owner will.

      3. Maintaining Service Standards

        With growth, it can be difficult to maintain those stellar customer service standards and response times that have helped build your brand to this point. The pressure to achieve sales and not let any customers slip through your fingers can mean we take a reactive approach to meeting that demand. The most common result is to recruit more employees who may or may not receive the level of training and induction they require to deliver the right standard of service. I speak to many business owners who have put up with poor performance from employees because they “can’t afford to lose them”; unfortunately, this is a very common theme.

        The Franchise Factor

        Meeting increased market demand with passionate, invested owner-operators makes more sense. The ‘skin in the game’ factor reduces the risk of franchisees taking shortcuts in service standards and procedures just to get the job done. As the demand in the franchisee's territory grows, your role as a franchisor is to help them grow their business in a manageable, sustainable way.

        4. Risk

          Investing your own or borrowed capital into additional business units carries a high risk; any number of factors could have devastating results on business such as labour shortages, market disruptors, cheap alternatives, changes to legislation, and heavy competition. When you are reliant on a manager to oversee operations, you will have decreased flexibility in responding.

          The Franchise Factor

          An owner-operator (franchisee) is in a much stronger position to adjust to operational and market changes, the absence of management salaries being a significant factor, as well as the ability to take on other functions within the business until conditions stabilise. If you have a good business model, you can continue to earn good royalties from your franchisees. The percentage returns you earn can be many times what you would have earned if you opened and ran the business units yourself.

          By Tereza Murray