One out of every ten U.S. businesses is a franchise, and they collectively bring in $1.2 trillion in annual sales. As an established business owner, you naturally want to fulfill your growth potential. Knowing which path to take, however, is not always a clear-cut decision. Franchising can be one of the most rewarding experiences in your career, but getting to that point takes a lot of hard work. In fact, depending on certain circumstances, your business might be better off not franchising.
But let’s examine why you might. When you consider whether or not to franchise your business, saying “yes” often depends on the factors discussed below. If these situations feel like they apply to your business, it’s a good indication that franchising might be worth it.
Your Industry Lends Itself to Franchising
Believe it or not, some industries are built for companies to easily franchise. Hair salons, restaurants and coffee shops are just a few. These are relatively inexpensive on the franchisor, and they can provide great return on investment not only because they benefit from scale, but also because their business models can be easily duplicated. There are, however, stores that may not be ideal for franchising, such as a niche boutique or a local attraction. But remember, just because your industry doesn’t appear to lend itself easily to franchising, it doesn’t mean you shouldn’t explore the idea. While it’s understandable to be hesitant, at least do some research; you may just find an opportunity that others have overlook, especially if new technology comes around that facilitates the franchising process.
You Have Little to No Capital to Expand
If you know that an additional storefront would boost your chances at success, but you lack the funding to set up and open that location, it’s not a bad idea to consider franchising. Getting a third-party franchisee to fund your opening is a good, cost-effective way to expand your business. Once you have a franchisee in place with the proper licensing privileges, you will need to train him or her about how to best manage the location. The franchisee will pay you fees, but don’t forget that it’s in your best interest to make sure they have every opportunity to succeed.
You Have Business Processes in Place That Work Without You
In order to franchise properly, you need to have a business model that can be easily replicated. You need to communicate how your processes, service, products and even company culture create an opportunity that other entrepreneurs will find valuable and enticing. Your business model should be successful without having to depend on your hands-on management. It should lend itself to success at the hands of many people; if not, it likely won’t work. If the proper training tools are in place, your business should be relatively easy to franchise, regardless of your specific industry. When your systems start appearing to consistently work without you, it is definitely time to consider branching out.
Things to Keep in Mind
There are many factors you need to keep in mind when deciding to franchise. As a franchisor, while you are indirectly responsible for your franchisee’s actions and business decisions, you are directly responsible for your brand. It’s important to choose someone that you can rely on and won’t tarnish your brand, so it might be a good idea to have your initial franchisee be someone you have already worked with in the past.
Also, if you don’t set certain rules upfront, you can’t expect your franchisee to run the store to your liking. Keep in mind that you’re letting another person run your brand to further your expansion. If there are no rules set in place upfront, things will be more difficult to manage down the road, and the last thing you want to do is lose control of your brand’s image. No matter what, make sure to consult with a legal team before franchising.
If your business model has proven to be excellent, and you’ve established your brand and have seen great success over a long period of time, it may be wise to consider franchising. Meeting the above criteria is a starting point, but don’t hesitate to seek a second opinion from a trusted mentor or a proven franchisor. If everything is clear, you may well be on your way to creating a successful franchise business.