You’ve made your business successful – you’ve grown it, nurtured it, and put in the blood, sweat, and tears. You’ve been through the ups and the downs, learned how to run it with your eyes closed, and know everything right down to the smallest detail, from what you need to order each month to who you need to employ and when.
Wondering if your business is ready to be franchised? If you have a small business that can be easily replicated, then franchising may be one of the best ways to expand it at a fast pace. When thinking about franchising your business, there are a few key criteria to consider.
Is it profitable and sustainable?
A successful franchise starts with a superior product or service – that’s what makes it successful. In addition to attracting customers, your product or service should also attract potential franchisees. Demonstrating your business’ profitability and credibility is especially important for obtaining buyers. Has your product been proven over time? If so, your business might work as a great prototype for franchisees. A franchise operation needs to be even more profitable than a regular business, since franchisees will have to pay an initial investment fee and royalties while still earning enough income.
Is your concept easy to share and teach?
You will need to develop a business system that you can teach to franchisees that can be easily replicated in other locations. Disclosures that must be given to prospective franchisees under U.S. and state laws have essentially mandated that a franchisor prepare some sort of “Operations Manual” to loan to active franchisees, and that it plan a new franchisee training program in advance of offering franchises. Therefore, before franchising you need to carefully document both how to develop and operate the business you want to franchise, and plan how you will train others to replicate your methods.
Is your concept easy to replicate across a diverse set of locations and does it have branding?
Could your business be successful in Connecticut, Arizona, and Oregon? You will need to examine whether the company could be a homerun anywhere and establish its own brand. It’s easy for entrepreneurs to underestimate how much value they personally add to the business, but for a company to translate into a thriving franchise, it should be able to survive the day-to-day challenges anywhere and do so without the entrepreneur’s personal touch.
Are they any regulatory or legal restrictions?
Both national and local laws and ordinances might make some businesses more challenging to franchise than others. Some franchisable businesses such as massage parlors, hair salons, child and elder care facilities, and pharmacies require licensed employees. Furthermore, licensing procedures may vary from state to state. Lawn and pool care services may be subject to environmental laws and regulations. Other potential barriers to franchise operations can occur in industries where insurance is involved; not only can insurance policies present a high burden for franchisees in general, but insurance requirements may also be stronger at the state or local level. Again, if you are aware of these details and continue working closely with your advisor, it should not become an obstacle.
Franchising is not for everyone, let’s be clear about that. Otherwise the market would be saturated!
Franchises provide a wonderful opportunity to be successful by maximizing on the opportunities that come with being part of a larger name. Although franchising can present some challenges, it also has several inherent advantages that can’t be overlooked such as the fact that being part of larger brand can help your business grow more rapidly. Franchising best suits business people who are willing to relax and allow others to replicate their concept with their advice and guidance taking a share of the franchisee revenues in exchange for the use of the brand and the know how and their continued development of it.
Bob E. Teittinen
Commercial Lender, Senior Vice President