In light of the rapidly changing demographics of the U.S. consumer market, minority business enterprises (MBEs) are absolutely essential to the continued economic success and growth of the U.S. However, many MBEs struggle with expanding their businesses and growing their revenue base, and the pandemic proved that it is just too risky to have one location or channel of distribution.
While franchising will increase the administrative burdens of a company, it is industry agnostic, so any company can implement this growth strategy, and franchising has proven to be successful in sustaining and growing revenues and creating practical and tangible business opportunities for others. Given this, MBEs should take a closer look at franchising if they are (1) looking to expand their operations but unable to self-fund some or all of the expansion and (2) willing to partner, support, and share economic benefits with other entrepreneurs authorized to sell the products and services under the MBE’s brand.
There are many benefits associated with franchising. From a business standpoint, franchising forces the MBE to protect its brand, goodwill, and intellectual property as well as develop and implement replicable and scalable business systems. Franchising allows a company (with minimum or no equity dilution) to grow with less contingent liability. Each franchisee of the MBE are business owners, and as a result of this, each franchisee will be more incentivized than company managers of MBE to sell more of the MBE’s products and services. Finally, franchising does not prohibit MBEs from operating corporate units as well. This gives MBEs the flexibility to analyze the costs/benefits between operating an additional site themselves versus granting one of its franchisees with a license to operate at such site.
From a legal perspective, franchising can be used as an effective risk mitigation strategy. Many people do not realize how easy it is to fall within the confines of federal and state franchise and distribution laws. Failure to provide these legally mandated disclosures subjects the company and its owners to federal and state regulatory actions, criminal penalties, and lawsuits. Having a franchise program can potentially reduce a MBEs legal exposure from violations of law as well as help to defend against potential misrepresentation and fraud claims.
Given these benefits, franchising should be at the top of any strategies relating to expansion. There are many MBEs, throughout various zip codes in the U.S., capable of being successful franchised concepts. These MBEs just need help with developing legally compliant and sustainable franchise programs in order to scale.
