Franchise businesses, like many of the large corporations that operate your favorite fast-food chains, are always looking for more efficient ways to open new locations to expand their reach and, ultimately, increase profits. One way franchisors might go about that is to pursue a conversion franchise. Conversion franchising involves an existing business either getting into the fold as a franchise or, in some other cases, a large existing business (with multiple locations) deciding to switch to a franchise structure.
Benefits of Conversion Franchising
There are numerous benefits for master franchisors. This party gets a new location that is, presumably, already established in the community market, not to mention profitable and featuring an owner knowledgeable about the industry. This situation allows the franchisor to cut down on launch time. Additionally, the franchisor eliminates a direct competitor and gets them working for their side. Conversion franchisees enjoy enhanced operational support and branding from the franchisor.
If a business decides to take its owned outlets and convert them to franchise locations, it will often look to existing supervisors, manager, and exceptional employees to become franchisees. This can give motivated employees a chance to spread their wings while cutting down on overhead for the franchisor.
Disadvantages of Conversion Franchises
In the case of conversion franchises, the primary challenge usually comes in the beginning when parties are trying to align interests and get the deal done. Small business owners who run an already-profitable company might balk at paying fees and royalties to a franchisor, which could cut down on profits. Entrepreneurs might also hesitate to give up the robust flexibility and freedom they enjoy running their own small enterprise.
What Industries Are Conducive to Conversion Franchises?
Not all franchises would benefit very much from using conversion franchising. Some of the types of businesses better-suited for this type of franchising include real estate companies, travel agencies, handyman services, and hotel chains. Some well-known examples of businesses that use conversion franchising include Century 21 and Ace Hardware.
Example of Conversion Franchising
Consider a mom-and-pop auto garage that has been doing routine tune-ups and minor collision repair for decades. The business was passed onto the son and daughter of the original owner a few years ago. The children enjoy running the business, but aren’t as passionate about the nuts and bolts as their father. So, when they are approached by a chain about possibly opening up as a franchise location under its branding and operational procedures, they are interested and engage in talks with the franchisor, ultimately signing an agreement.
Contact Trembly Law Firm
Our firm has experience helping clients navigate all areas of franchise law, including conversion franchises. We would be honored to help you and your business achieve optimal efficiency and profitability; please call us today at 305-431-5678.