Structuring a franchise

When choosing a franchising structure for the market the most fundamental question that the prospective franchisor needs to ask itself is "what do I aim to achieve by franchising?". Is it to earn vast amounts of money by establishing the business across the nation? Is it a defensive move to keep up with key competitors? Is it to sell more products? Whatever the answer, it is likely to have a significant effect upon both the wisdom of franchising and the structure to be adopted. There is no right or wrong way to structure a franchise. It will, at least in part, be determined by the franchisor's available financial and other resources, the product/service involved, and the relative importance of the project to the franchisor.

The financial strength of the franchisor or at least its access to finance from its bankers and possibly from government agencies will be one of the most important issues for it to consider. The cost of entering into a series of regional franchises, although not inconsiderable is likely to be considerably less than pursuing the unit franchise approach to the market. In practice, a mixed approach is probably going to be most appropriate, with the franchisor developing those regions in which it already has a presence or which, for various reasons, it deems to be desirable for it to exploit, and regional franchises being granted for other areas.

For example, a franchisor based in the USA may decide to grant unit franchises in California and Oregon and grant regional franchises in other areas such as the Midwest and Florida. The rationale being that it has an existing presence on the West Coast and will concentrate on New England as it sees that region to be strategically important for it. However, whilst the Midwest Florida and New England are key markets the franchisor acknowledges that without regional franchisees it can properly exploit the market as quickly as is necessary to stay ahead of the competition.