Want to Franchise Your Business? Here Are 5 Key Things to Consider.
Just because you can doesn't always mean you should.
If you own and operate a wildly successful business, there are times you’ve probably considered expansion and the growth of the brand. For some, that might mean opening a second location across town. For others, it might mean adding multiple locations in specifically targeted regional areas. But if you’re thinking about the scalability of your brand on a grand stage, franchising your business model could be the answer you’re looking for.
There are pros and cons to using the franchising route to drive growth, but before you go a step further, here are five key things to consider.
1. Are you as popular as you think you are?
Long before you ever pull the trigger and take the initial steps towards franchising your business concept, you’ll need to read the room when it comes to your reputation. Be sure to ask yourself a few questions — and try your best to answer them with an unbiased opinion. Sales might be going gangbusters, but what do your consumers truly think of your brand? What do your online reviews have to say about your brand’s quality? How do you think your business model would do if it were located across the country in an area quite different than yours? If you have a proven history of business success, perhaps going back years, and you’re the undisputed industry leader of the product or service you offer, franchising could be up for further discussion.
2. Can you clone what you offer?
Franchising is wholly dependent upon the ability to replicate the success of a product or service that you offer consumers. If you make a pretty mean burger, served with a purposeful side of attitude from staffers dressed alike in hot pink uniforms, you just might be on to something. But if you sell high-quality, hand-stitched quilts with as many intricate designs as you'd find in snowflakes, franchising might not be the best way to expand your operation. A product that depends on the time-consuming, hand-crafted, painstaking uniqueness of each piece likely won’t lend itself to the rapid level of replication necessary for franchising.
3. Replicating the business model
Cloning a product or service is one thing, but replicating the systems and processes that make a business model unique in the first place is often a tall order. Sometimes, businesses are popular with a local crowd simply because they like and appreciate the way you do business. But what customers in Hattiesburg, Miss. appreciate about doing business with you may not fare as well in another market such as, say, Manhattan. Before you consider franchising as an option for expansion, evaluate the procedures that make up your entire operation. Then answer a telling question: Could a stranger quickly get up to speed and run the business in your absence with ease? Why or why not?
4. There’s a lot of effort involved
Franchising your business requires a lot of effort. There are lots of legalities to consider for replicating a business in all 50 states and Canada. Certain certifications and authorizations must be on file to do business lawfully. Then there’s the creation of strategic documents for your brand that include developing a franchise business plan, drafting the franchise agreement terms and creating your very own franchise disclosure document (FDD). Oh yeah, that alone has 23 different sections. Lastly, have you considered what you’ll charge franchisees in the way of initial fees and royalty payments?
5. How’s your profitability?
Before you dive into franchising your brand with both feet, you can easily do some simple calculations on the operating profitability of your business model. You might begin with gross sales and factor in what that might look like for a franchisee who’s also paying royalties. More comprehensively, you can zero in on operating profits. Calculate the cost of your product or service, labor and overhead. Determine the average sale per customer, then extrapolate what that might look like in a system with 10 franchisees. Unit-level economics can be a fun exercise — at least if you like working with numbers and math.
There are certainly thousands of thriving businesses out there that could easily meet the definition of “franchisable.” But just like the scientists who cloned the dinosaurs in Jurassic Park, just because you could doesn’t always mean you should. But for brands who do make the jump and franchise their business models, franchising can elevate their success on an exponential level. If you do want to consider franchising a successful business, make sure you enlist the help of an experienced franchise attorney (yes, they specialize!) who can help you navigate the incremental steps included in this challenging — but rewarding — method of expansion.Related: The 8 Things You Need to Know If You Think You're Ready to Turn Your Business Into a Franchise