Overcoming the Financial Constraints on Small Firm Growth

Abstract

Many studies have shown that for small businesses one of the greatest barriers to growth can be financial. It has been suggested, however, that franchising may provide small businesses with a source of capital with which to expand. The costs of developing the franchise, though, can be substantial; hence this study considers whether franchising can help small businesses overcome the financial barriers owner-managers may face. Against this background, 22 franchisors were interviewed, to allow an in-depth, qualitative examination of their experiences. The findings suggest that although franchisees do provide some of the capital required for expansion, franchising should not be viewed solely as a capital-raising exercise. Before the franchisees could be recruited, substantial set-up costs were incurred by the businesses interviewed. It is argued that further research is needed in order to compare the difficulties experienced by franchisors with those experienced by small businesses adopting alternative strategies for growth.