Imagine owning a uniquely attractive local food service concept that regularly has lines out the door. The first unit was so successful that you opened a second one across town, which is doing just as well.

The question then arises, how can this concept grow further? Do you take all the risk – max out your credit cards and/or knock on bankers' doors in an attempt to increase capital for expansion? Do you take over PArtnErs and dilute ownership stakes and decision-making power? Or investigate franchise?

If your business has strong unit economics and a system that is easily duplicated (but not so simple that people can do it without your help), this last move may be right for you. And, of course, it's a model that has the potential to work in any number of industries, not just food. Dermatologists and dentists are exclusive offices, along with pet-focused services, eyelash extension boutiques and music learning facilities. The franchise sector actually outpaces growth in the broader economy, according to the International Franchise Association Economic Outlook of Franchising 2024.

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There are numerous advantages to expanding this way, the main two being the speed of growth and protecting your money by using other people's (franchise) money to open units. Although you will need to invest time and money in developing legal contracts and other documents for a franchise offer, once the paperwork is complete and the legal obligations are in place, you can sign on to single or multi-unit operators much faster than customizing each deal separately.

A word of caution: Don't go cheap in this formative phase (or any phase, for that matter). Hire a knowledgeable attorney and accountant with franchise expertise and a reputable consulting firm to make sure you have the essentials covered. This type of business is regulated, so you want to have everything legally sound and fair for both the franchisor and the franchisee. After all, this will be a relationship that you will ideally be in for the long haul.

At least for now, the Fed has yet to act on interest rates, so it's likely that the low rates seen before the pandemic will not return for the foreseeable future. Rather than using your own (perhaps borrowed) capital for expansion, the franchise model fosters growth with the capital of others. Your focus can then turn to systems improvements (such as technology, marketing/advertising, and training) to make the company attractive to both customers and franchisees.

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Another plus: When opening a new unit, the franchisor's resources are not burdened with unit-level details, such as staffing, training new employees, sending press releases to the local press or paying taxes. They don't even have to work with real estate agents to find the perfect place, pay rent and CAM (common area maintenance) or make payroll. All of them are handled by the franchise. There is also limited liability in the case of employee or customer legal complaints as you are not involved in their day-to-day operations. You are free to focus on the big picture (which may include company-owned units) while the unit owner/operators handle their sites.

And since franchisees have their own money invested, they are more likely than hired staff to keep an eagle eye profitability and customer service. They can also be a franchisor's eyes and ears on what customers want in the way of new products or services. For example, it was a franchise that came up with Metro's wildly successful $5 Footlong campaign and another who invented Dairy Queen's signature item: Blizzard. They are also highly rated with simpler systems and coming up with ideas for additional profit centers. All innovations will have to be approved by you, but this is research and development for which you do not need to pay a consultant.

The process can also take the company into neighborhoods you wouldn't normally consider. While many franchisors try to keep regional expansion at first, making further development deals with experienced operators can help increase competition, especially if national expansion is the goal. These local partners are likely to better identify “A” locations from “B” locations and may be able to help establish better supply chains with local vendors. Even better, as a multi-unit franchisor, you'll be able to build purchasing power that will help both your bottom line and those of your franchisees. Finally, if international expansion is desirable, having local partners doing deals in other countries helps solve problems such as dealing with different languages, laws and cultures.

Finally, if growing your company and then selling it is the long-term goal, all of these benefits (speed of growth, dedicated management with a personal and financial interest in the business, and better-than-average profitability) will help generating higher multiples when it's time to bid.

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The mantra for franchising has long been, “You're in business for yourself, but not alone.” The same rubric may apply to the franchisor. As the founder of the company, you are the one who knows the brand best. But by welcoming other qualified business people into the system, you are able to accomplish goals faster and with all the traditional benefits of leveraging a variety of individuals' experiences and knowledge.

There are challenges to franchising. Choosing the right unit buyers is essential to a good experience, and you can't be a dictator – you have to be willing to listen to partners and make sure they're getting value. Like anything worthwhile, it is not for the faint of heart nor the unprepared.