Should you franchise your business?
Should you franchise your business? Do you want to expand your business and think franchising is the way to go? Sounds easy enough – write up an agreement and you’ll have people knocking at your door to buy your concept – right? Whoa – think again. Compared to running your own business, franchising is a completely different beast. Planning and preparation are key for success. Thoroughly research all aspects of this business model before launching a franchise.
Successful franchises start with a business that is very successful. No one wants to invest in a business that does not have potential for profitability. Forbes Magazine offers additional tips for franchising your business with this article: 8 tips to get started franchising.
Two options for business expansion
If your business is doing very well and you are looking to expand, there are two main options. Your options are: build out more locations or expand through franchising. Building out more locations is preferable if you have the capital to do so. You will retain more control over the operations. Operating several company owned locations is recommended before setting up a franchise. Several locations allow you to refine your processes for various markets.
Franchising requires a different skillset
Franchising to others requires a different management skillset. It is very different from location expansion. A good franchise option has systems and procedures that can be easily replicated. Therefore, a model concept for a franchise is easy to explain through a step-by-step operating manual.
Questions to ask before setting up a franchise:
- Are you franchisor material? You will be assisting others with the business rather than running your own. This requires training, support, and a lot of hand holding — especially in the first year of a new location. Do you have personnel to handle the process? Do they have franchise experience?
- Does your product have marketability? Does your product offer a uniqueness and is there a demand for the product or service? Is there a demand in various markets – not just your current market?
- Is your business profitable and promising to prospective franchisees? Franchisees expect to make money. After they pay royalties and expenses will they be able to make a profit? They won’t invest unless they see a pathway to profitability. Would you?
- Can your service or product be associated with a trademark – can it be registered? An easily recognizable, registered trademark is essential for any franchise.
- Do you have the capital to set up and market the franchise? This may take quite a bit of time – it could be years before you see profitability.
Consult with experts to help you set up your franchise
After completing your research, look into several companies that will help you set up your franchise. There are many companies that provide various services. Be sure to consult with an experienced franchise attorney and accountant to plan the franchise venture and write the legal documents.
The Franchise Disclosure Document (FDD) is required
The FDD (Franchise Disclosure Document) is a document required by the FTC for every franchise. There are strict requirements for the FDD that must be followed. Non-compliance may result in administrative or criminal sanctions or both. Some states are registration states and have additional requirements. Hire a well-qualified franchise attorney to assist you in this process and become familiar with the requirements state by state.
Franchising is a great way to expand a business
Franchising is a great way to expand a business. However, before franchising your business it must be successful on it’s own. To prove the viability of the concept, several successful locations should be in operation. Should you franchise your business? Systems and procedures that can be easily replicated by others is essential for a successful franchise. Consult with an experienced franchise attorney and accountant to plan the franchise venture and avoid legal difficulties. There are franchise development companies that will assist in this process. Realize that when you become a franchisor your role in the business changes completely.
Read my blog at Franchise Blog for more information on franchising.
Trish Benedik
Registered Franchise Consultant
Select Franchise Consulting