Growth by acquisition or franchise?

Want to grow your business? You’ll have to spend money to make money.

After several years of economic growth, there are a significant number of business owners contemplating expansion. There are three main paths to this, and two of them involve business sales, though very different in nature.

The most common form of expansion is natural growth, simply doing more of the same thing, with a gradually increasing client base matched by increases in internal resources. However this is not always the best alternative.

The growth alternative most popular with large organisations is acquisition. One of the reasons for this is that it has a far higher success rate than attempting to grow the company any other way.

Successful expansion by acquisition requires access to funds, and the ability to manage the merging of the businesses into a cohesive whole. It is an option often overlooked by smaller businesses, usually because they don’t have the confidence in their ability to obtain the funds or manage the merger. While there is no doubt these are significant obstacles, obtaining acquisition finance is easier than many people think.

The other increasingly popular growth alternative is franchising. For this to work your business needs to have a decent brand, very sound operating practices and procedures, and you must be prepared to split the overall business with many other business operators.

Franchising is often promoted as the fastest growing industry sector in Australia, although this is a little misleading as franchised businesses exist in a wide range of industries.

Another hurdle that needs to be overcome in franchising is establishing the framework, attracting franchisees, screening them, training them and fine tuning the relationships and processes. It can take a while to get momentum and the costs are not insignificant, with a budget of $200,000 needed before signing up the first franchisee.

You can grow by doing more of the same, buying what someone else has built, or selling your brand and know-how to many partners. Regardless of the path you choose, be aware that each path will cost you money before it makes you money.

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