So, you want to franchise your business but are you ready?

Franchising can be an attractive vehicle for businesses to achieve scale.

Ask yourself these seven questions before you consider franchising your business.

1. Can my concept support franchising?

  • Is your concept able to support a royalty structure? If your current business cannot achieve 20%+ EBITDA without royalty and marketing fees included in the P&L franchising may not be for you.
  • How simple is your concept to operate? Can you train your concept to others? How will you train this concept to others?
  • Franchising should follow the “KISS” method. In franchising, the goal is duplication.
  • The best franchisors are uncompromising when it comes to brand consistency and they are willing to spend the time and money necessary to ensure their standards are strictly enforced.

2. Can my management team pull this off?

  • Does your management team have franchise experience? Franchising is a different mindset compared to operating corporate units.
  • The strength of your franchise system will be measured by the strength of your corporate infrastructure.
  • Does your team have unified core values and a singular vision? Can they maintain your culture as you grow?
  • Do you know the inflexion points and positions needed to properly support your franchisees?
  • Do you have a strategic plan?

3. Do I have enough capital?

  • Even the best management team and a fantastic concept cannot begin franchising undercapitalized.
  • Franchising takes a substantial upfront investment before returns are reaped. There are critical points in the lifecycle of every franchisor where investment in corporate infrastructure is outpaced by incoming royalty streams.
  • Franchising can be very profitable but understand it is a long road for most franchisors to reach profitability.

4. Are my legal documents correct?

  • Franchise law is very specialized and your documents must be constructed by someone who specializes in franchise law.
  • Attempting a do it yourself approach in regards to franchise legal documents is a sure path to failure and legal trouble.

5. How will I sell franchises?

  • According to a recent IFA conference there are more than 2,000 active Franchise systems under 20 units and almost 3,000 Franchise systems under 50 units. Why is that the case? Because selling franchises is hard and the business model may not support the efforts.
  • Do you know who your ideal franchise candidate is? Where will you find these candidates? What is your sales process to award a franchise?
  • According to Franchise Update Magazine, the average cost to recruit one franchisee in 2010 was $13,019. That means franchisors that want to add 20 new franchisees must expect to invest $260,380. What is your plan and budget in this area?

6. Who is my demographic?

  • A common denominator of successful businesses is their scientific understanding of their customer. The consumer’s makeup or demographic of any business is constantly evolving but the business needs to apply a data driven and scientific approach to real estate selection.
  • Does your business understand your demographic? Do you have a real estate model? How will you ensure location consistency? How will you support your franchisees with selecting real estate?

7. Do I have the right supply chain partner?

  • Can my current supply chain support franchising?
  • Do I have the right partner to maintain consistency of my product? Regionally? Nationally?

These seven questions are crucial starting points for any business to consider before launching franchising. “Franchising can be a low cost means of growth but it is by no means a no cost means of growth” (Entrepreneur). Make sure your business is prepared before you begin to take on franchisees.

Here are some other great articles which helped me formulate my opinions and should be viewed as you consider franchising your business:

https://www.entrepreneur.com/article/204998

https://www.allbusiness.com/7-biggest-challenges-to-growing-a-franchise-system-16647575-1.html

https://www.entrepreneur.com/article/252592

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Ryan Rao is a Principal of Apex Franchise Development Group and is a franchise development expert who has grown multiple franchise based businesses into national and international brands. Franchising has allowed him to help individuals realize their dreams of business ownership, while permitting them to experience the independence, flexibility, and freedom that comes with being a business owner. He also serves as a franchise consultant, and is a personal growth advocate.

Follow or Connect with Ryan on LinkedIn at https://www.linkedin.com/in/ryan-rao/