July 27, 1998
Small Business
Franchising: A way to fund expansion?
Susan Smith Hendrickson
Does your company have what it takes to expand by franchising? The owners of Novato-based On Site Laser think their business does.
On Site Laser, a Business Times profile back in January, is a two-year old, $1 million laser printer repair and supply company. It operates successfully in San Francisco, Marin and Sonoma Counties and the North East Bay, and had been questioning how to serve clients in the San Jose area. After talking with one of its clients, the Franchise Foundation in Calistoga, On Site decided to grow by franchising.
"It's less overhead for the parent company," said Frank Zedek, marketing manager. "And, it's a way to get an owner mentality. Franchising gives a person the drive to do well."
In exchange for $40,000 to $77,000, On Site Laser will provide franchisees with a van to make repair calls, four weeks of training, the On Site name and ongoing support through two-way radios. The company is selling three territories right now -- Santa Clara County, the Peninsula and the 680 Corridor.
"For a business to grow beyond six to eight locations, they need a substantial amount of capital," said Kevin Murphy, director of operations for the Franchise Foundation. "Franchising uses the OPM principle -- other people's money. You don't get to keep a 100 percent of the profits, but you don't have to fund the expansion."
According to Murphy, companies that are thinking about franchising need to ask themselves the following: Is there a need for my product or service? Is it more than a fad? Have we developed an efficient operating system and marketing know-how that can be easily transferred to someone else? Do we have a large enough profit margin built-in that a franchisee could make a decent living after paying royalties and advertising fees?
"If you can't answer these questions with a `yes,' then it's likely the franchisee won't do well," said Murphy. "Litigation is the No. 1 risk of franchising."