What to consider before franchising your business
Strong financial performance and a replicable business model are key.
Franchising can be an excellent way to grow your successful business, but you must ensure it’s the right fit for you and your company.
With franchising, you enter into a contract with other entrepreneurs to replicate your business in exchange for paying you fees. While this allows you to grow your business with the help of your franchisees’ investment, it comes with risks and challenges.
To improve your chances of success, several financial and operational factors must be considered before deciding to go the franchising route.
ADVISORS
It’s vital to assemble a team of experts to help you look at your franchising options, potential expenses, and operational requirements. Team members typically include a lawyer, accountant, banker, and consultant. In each case, they should have specific expertise in franchising.
FINANCIALS
As a franchisor, you will ask other entrepreneurs to invest in your business model, so you must show them your company has a track record of generating healthy profits over several years.
“Do you have a history of sustained financial performance?”
You must also consider whether you have sufficient capital to make the upfront investment required to set up a franchising operation. Typical expenses include fees for legal and other professional advice, protecting intellectual property, market research, and marketing and advertising, among other things.
REPLICABLE BUSINESS
To expand through franchising, your business must be rigorously standardized with operating procedures and methods that are easy to teach to franchisees and their employees. To do so, your policies should be codified in manuals, preparation charts, and other tools to create consistency across the business.
Consistency is critical to maintaining your company’s brand promise to customers throughout your franchise system.
SCALABLE BUSINESS
Determine whether your business model can be successful in other geographic locations under different management and staff.
Will it work in markets where customer habits, needs, and desires differ? Is your current success dependent on your unique skills as the owner or that of your key employees? Will you be able to find high-quality franchisees who are passionate about your business?
PERSONALITY
It takes great strength, persistence, and determination to build any business, and there are certain personality traits that most successful entrepreneurs possess – passion, motivation, optimism, and the willingness to put themselves out there and take a risk.
However, not all great entrepreneurs make great franchisors – it’s a whole different ball game and demands other skills and qualities.
Entrepreneurs should also consider whether franchising fits their personal preferences and work style. It often requires entrepreneurs to move from running the day-to-day operations of a business to managing and coaching a group of franchisees.
The personality of the franchisor can really make or break a franchise brand.