With favorable circumstances, the leaders in the franchising industry look for further expansion and increase the reach to a newly defined level. As market conditions favor most businesses, many small and mid-cap organizations bloom and flourish. The leaders tend to shift their focus from just growing into a valued outreach to competing with brands in all possible strata. Refranchising is a strategy where the brand starts franchising its own company-owned units for generating more income. in other views, re-franchising is a business model that is strategically used to aid in the company’s exponential growth.
Re-franchising is a process in which a brand starts franchising its own company-owned units for boosting income. Many companies have proved to be successful, while others explain it as not their cup of tea. When the franchisor decides to sell a majority of the company-owned units, it is called re-franchising.
What to look for in Franchisees when Re-franchising?
Selling a corporate unit requires a lot of attention to be paid to what kind of franchisee is taking up the unit. Refranchising is a delicate art. If the franchisee turns out to be sub-optimal, capital-drained, and antagonistic, it will hamper the health of the corporate unit, and affect the targeted growth of the brand as a whole.
How Does Re-franchising Work?
Franchisors look forward to re-franchising the corporate unit when they experience trouble in handling the network of company-owned units. Re-franchising provides them with :
- higher profit margins
- faster paced growth
- efficient brand operations
When re-franchising, brands should pay heed to the fact that re-franchising is as delicate as setting up a brand in the first place. The franchisee’s sense of business should undoubtedly encompass and align with the company’s brand value understanding, the strategies, and skills that were in place, and the original working concepts that are attached to the brand. Re-franchising effectively helps in liquidity as well.
Benefits of Re-Franchising for the FRANCHISOR:
- Liquidity of Investment. The re-franchising affects the business positively by enabling the franchisor to liquidate its investment and alter its investments to higher-priority usage.
- Greater Profit Margin. When the company-owned unit is taken up by a franchisee, the company’s initial investment is reduced by the revenue that is earned from the royalties, and franchisee payments. This induces a higher return on equity and greater profit margins in the future for the franchisor.
- Revamped Operations. when a franchisee takes over a business of the franchisor, there is a heightened sense of commitment and efforts towards the business in the lieu of the investment made by the franchisee. This adds up to the investments made by the franchisor and makes it stronger as a brand. Hence, the operations of the company-owned unit as well as the whole brand’s functioning are revamped and show potential for exponential growth. This in return aids the system’s growth.
Benefits of Re-Franchising for the FRANCHISEE:
- Running A Set Business. Post the purchase of a Re-franchised unit, it is comparatively faster to commence operations for a franchisee. Everything comes pre-planned and set, including the site of operations, set-up cost and investment, and trained employees. One of the most important prospects of owning a re-franchised unit is that it’s already functioning with some amount of profit, the location is familiar, there is a customer base, and marketing is figured. A piece of cake on a platter!
- Better Metrics. Franchisees have the advantage to look into the functioning and the profits that the unit is making before getting into the business. This gives them a better picture and uproots assumption-based decisions by assessing the profits, business structure, and effective operations.
- Leveraging existing overhead. Existing franchisees who purchase re-franchised locations are better able to leverage their overhead and obtain economies of scale through the operation of multiple units, especially when those units are located within a single market or contiguous markets.
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