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Why should you consider converting?

What do many successful businesses ranging from those is the trades – electricians, plumbers and builders – through to white-collar professions ranging from real estate agencies to optometrists and even veterinarian practices have in common? They operate under a franchise business model having converted from an independent business model.

Some of the most successful franchise brands have been built on the back of a conversion strategy, but you may ask why an existing independent business would convert to a franchise business model?

Brand recognition

Perhaps the biggest driver is brand recognition, which translates into marketing power, position and ultimately a larger share of the market and greater revenue.

As you’re reading this I can suggest some real estate jingles that come to mind as well as a number of trade-related services that start with 0800 name of brand.

All of these businesses are franchises, owner-operated and, in many cases, started as independent businesses.

Systems

You can query any skill-specific professional: “You may know your trade, but how good are you at the business?”

The answers can vary significantly. Think about the plumber’s invoice that came a few months after the work, or if you’re running an independent business – think about your experience of doing those invoices at 11pm on a Friday evening.

Franchises provide systems and processes which will assist the business owner in running the business versus doing the doing.

Additionally, a franchise has the collective resources and focus to innovate and re-invest in the actual doing as well. Often creating commercially beneficial differentiation for their franchisees.

Purchasing

Increasing recognition and revenue in themselves are good things for a business, but reducing costs leads to greater profitability.

Franchise systems are able to collate the purchasing power of their franchisees and provide pricing that an independent could not achieve. These cost savings can be significant and can by themselves change the performance of a business.

Two-way benefits

A common resistance from potential converters is the perception that they will be giving away revenue to the franchisor in the form of royalties or fees.

Not all franchise models include a percentage or flat fee structure, some systems generate their revenue from rebates from suppliers.

In these circumstances the franchisee is benefitting from the purchasing power and lower prices, so there can be a double benefit.

I would suggest that even in circumstances where a percentage or a flat fee is paid to the franchisor the accumulated benefits of a good franchise system will far outweigh the fees.
It is worth any independent business owners’ time to review and consider.

Resale and exit

Many independent business owners never think about their exit strategy, will they be able to sell their business, to whom, what are the unique selling propositions for the business?

A franchise may assist an independent business owner in marketing, attracting and securing a resale. And it will most definitely be able to support and develop the incoming purchaser, freeing the seller to exit and not be encumbered with potentially long or drawn-out buyer assistance periods and the like.

Nathan Bonney
Director of Iridium Partners. He can be reached at nathan@iridium.net.nz or 0275-393-022

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