One thing that new franchisors need to be careful with is watching their cash flow. It takes about one to two million dollars to adequately set up a franchising program for an existing company with a viable prototype already in place. It is wise for franchising executives to consider the need to conserve and watch outflows like a hawk. Indeed there are ways to replenish funds if a new franchisor entrant blows thru their investment capital. Many franchisors fail merely because they did not have the money to hold the rocket ship together as rapid expansion took place and more and more franchises were sold. If not the market will end their game. Often expanding new franchisors will need additional investment capital. A franchising arm of a larger Corporation can become a severe temporary liability for the company during rapid expansion, even as massive amounts are coming in from sales, lots is going out to handle it. The money in franchising is made from royalties over time and the franchising company must spend in the beginning to secure a stable royalty income flow. Those companies which find themselves in severe cash problems there are ways out of this such as an IPO, Investment Banks, additional partners, vendors loans and other strategies. Although I have seen an overseas Master Franchise deal or two bail a company out of their problems. Selling the rights to entire countries for the brand name can bring in millions of dollars quickly and of course being IFA International Franchise Association connected it can help make these things can happen too, I have seen it before. Business Management and MBA schools should teach these things, although generally I see little of that. Many companies these days opt for dealer, licensees or Franchisees and therefore these issues are important considerations indeed. |
Main
