What to consider before franchising your business
You know your business better than anyone else, but is it something you can teach to others? One of the key features of a franchise is whether your business model can thrive in a variety of different environments - and under many different circumstances. For example, a franchisee will have primary control over how business is conducted at a new franchise location; will you be able to create policies and guidelines that are easily duplicated and simple enough for each franchisee to follow in a way that's consistent with your brand? Is your product better suited for certain markets than others? A solid franchise business can weather economic downturns, but it's important to perform research to determine how viable the franchise opportunity is that your business may or may not present.
Can others learn to sell your product and/or provide your service, or does the business depend on your talent and skills to succeed? Can you assess how much patience and passion the franchise owner has for seeing the location through the launch and opening to ensure continued success? These are two of the most important factors for you to consider.
Three more factors to consider when franchising are:
- Do you have strong enough revenue and a customer base that indicates you could be successful with additional stores? If one store is struggling, adding a second or third store may not be in your best interest.
- How far does your market reach? It's important to know whether demand for your particular product or service reaches beyond your immediate area and into the location where you're looking to expand.
- Have you established a clear brand identity? Today, more than ever, branding and corporate identity are crucial. Do you know your brand’s identity, and is it something that can be conveyed clearly and consistently in multiple markets?
Understanding the pros and cons
Understanding the associated costs, risks and responsibilities of how to start a franchise can also help you determine if franchising is the right move.
Some of the advantages of starting a franchise business include:
- Potential for rapid growth that's funded by franchisees
- Opportunity to earn a percentage of profits from each location
- Additional stores/locations expand brand awareness
- Business arrangements such as hiring, costs of opening a new location and negotiating leases are handled by franchisees, who cover the costs
While these factors appear to have obvious benefits for the business creating the franchise, there are also some potential downsides and obligations to consider:
- As the franchisor, you'll be responsible for all legal and regulatory fees.
- It usually takes a considerable amount of time (and money) before you see a profit, so it's important that you're realistic about what you're going to have to put into the business.
- The responsibility to monitor all franchise units and ensure they're fulfilling their obligations and commitments to the brand will fall upon you.
The final decision
You need to consider many different factors as you weigh whether you and your business are ready for franchising. You'll want to look at your potential and existing competitors, realistically assess how many franchisees will be interested in investing in a unit of their own, and be prepared to be scrutinized by potential investors.
The Federal Trade Commission (FTC) will require you to prepare and submit a Franchise Disclosure Document (FDD). When you write this document, it must outline 23 specific pieces of information about your company. These items, known as "franchise rules," include information about your business background, including any history of bankruptcies, litigation and overall experience.
You will also need to develop a strong, detailed business plan that includes a clear marketing strategy and financial projections. You want to ensure that the public knows that you remain committed to quality.
If you believe that your business has the potential to succeed as a franchise, you can begin by meeting with a franchise attorney and learning what the next steps are. There's a considerable amount of legal work that must be done to ensure that all agreements are spelled out clearly, for all parties. Your attorney can help guide you through the process and start you on the road to owning your own string of franchises. The potential for growth of a successful business is significant. But it’s important to plan wisely and to make sure your business is protected.