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Alternatives to Franchising Your Business

Since franchising your business is an expensive undertaking, you should consider other means of expanding your business. We will very briefly look at 5 of the various business expansion vehicles as compared to franchising:

1. Company-owned expansion

Advantages: Branch offices with control over all aspects of the business.

Disadvantages: Heavy capital outlay, management/employee issues, local and state regulations, ownership liability to third parties, direct financial impact of failures.

2. Joint Ventures/Partnerships

Advantages: Fewer regulatory requirements, greater control and flexibility, synergies of combined business skills.

Disadvantages: Moderate capital outlays, joint and several liability, no up-front payments, direct financial impact of failures, local and state regulations.

3. Independent Sales Representatives

Advantages: Independent agent, not an employee, fewer local state regulations, no direct impact for representative’s failure to make sales (hire other salespersons as needed).

Disadvantages: Agency liability, potential tax treatment as an employee, non-exclusive relationship with product.

4. Licensing

Advantages: Lower capital outlay, fewer local state regulations, licensing and royalty fees, minimal oversight and staffing, minimal direct financial impact for failures.

Disadvantages: Minimal controls, teetering on courts’ determining it to be a franchise even though it is not set up as one (the inadvertent franchise), monitoring issues, “at-will” relationship.

5. Distributorships/Dealerships

Advantages: Lower capital outlay, fewer local state regulations, increased market penetration, potential sharing of some advertising costs, minimal direct financial impact for failures.

Disadvantages: Minimal controls, teetering on the franchise/employee ledge (again, the inadvertent franchise), monitoring issues, potential termination and renewal, local and state regulations, no fees or royalties per se, potential non-exclusive relationship with product.

6. Franchising

Advantages: Greater control of quality and uniformity of brand, franchise fees and royalties, lower capital outlay, motivated operators, enhanced trademark value, no employee burdens, no direct financial impact for failures, increased market penetration.

Disadvantages: Initial costs of setting up system and annual updating costs, significant state and federal regulatory requirements, audit expenses, employing a franchise staff, monitoring of quality and uniformity, greater local and state regulations.

This is not intended as an exhaustive analysis, but merely to make you aware of the alternatives to franchising your business that are available. Then you can consider whether one of these might be a more appropriate option, or even whether it could be used as a stepping stone to franchising. You should consult a franchise attorney or consultant for an in-depth discussion of these issues.

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