Franchising your business can be a tremendous endeavor but it is vital to have the right mindset, clear expectations, and a plan in place.
For emerging franchise brands these can be some of the biggest myths:
1. Franchise Fees are a Profit Center
Franchise fees should not be thought of as a profit center for emerging franchisors. Emerging franchisors should be reinvesting every dollar incurred from franchise fees back into the business to help ensure successful franchisees. After franchisee acquisition costs are covered the remaining balance should be allocated to building corporate infrastructure.
2. Corporate infrastructure is paid through royalty income
After a franchise is sold there is an onboarding process before royalty revenue is realized to the franchisor. There must be a proper upfront investment in corporate infrastructure before you begin selling franchises. The savvy decision is running financial models which outline the critical inflexion points of scaling the business and needed resources. For an emerging brand, human capital needs will outpace royalty revenue.
3. Any sales professional can sell franchises
Franchise sales is a very complex industry governed by the FTC. Make sure to hire or outsource franchise sales to professionals.
4. Sell franchises to whoever can afford it:/strong>
Perhaps the biggest myth or mistake in franchising is selling franchises to whoever can afford them. In addition to capital, franchisors should take into consideration geography, background, operational wherewithal, and cultural fit before a franchise is awarded.
5. The FDD can be created by any attorney
Franchise law is a beast of its own. Seek franchise law specialists and speak with multiple before deciding to move forward with the creation of the FDD.
6. Franchising is the same as operating corporate business units
Owning and operating corporate business units is vastly different than selling & supporting franchisees. As you may notice, most franchise brands are heavily lopsided either franchisee or corporately owned units. These brands have recognized their strengths.
I hope these myths help with your expectations when you consider franchising as a growth mechanism of your business.
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/