Is your small business thriving? Do customers from out of town ask if you’re going to open another location in their neck of the woods? Are you secretly yearning for a new challenge now that your business is running so smoothly? If you can answer “yes” to all these questions, it might be time to consider franchising your business.
But there are a few other questions you need to answer to determine if you’re ready to get serious about franchising your business.
Does my business have strong systems in place?
A good franchise has operational systems and processes that can be standardized and taught to other people to provide a consistent product or service across all locations. For example, if you own a sandwich shop, do you have a written system for all the steps of making a sandwich, such as:
- Whether to put on gloves first
- How much meat, cheese, mayonnaise, and other ingredients to use (such as “two ounces” or “one tablespoon”)
- The order in which to assemble the items
- How to wrap and package the sandwich
It may sound picky, but these are the kinds of things that can make or break a franchise. If different franchisees make sandwiches differently, here’s what can happen:
- Your sandwiches won’t be consistent, which will hurt your brand.
- The locations that aren’t consistent about measuring ingredients will be less profitable.
- Without a standard process, sandwich assembly will take longer, hurting the customer experience.
An employee handbook and an operations manual are essentials before you even think about franchising.
Do I need to be there for my business to work?
This is a common issue with service businesses, especially if you started out as a one-person business. If you are a consultant, graphic designer or masseuse whose clients only want to work with you, it doesn’t matter how many people outside your location ask for your services—there’s only one of you, and you can only spread yourself so thin.
To prep for franchising, start training employees to provide the same services you do. Then start easing your customers into working with your team instead of directly with you. You can do this by charging more for your personal services (as many hair salon owners do) or assigning new customers to employees while continuing to service the long-time customers.
Do I chafe at following rules and regulations?
There’s a lot of red tape involved in franchising. You’ll be required to follow both state and federal laws regarding franchises. For example, the FTC’s Franchise Rule requires franchisors to give prospective franchisees a Franchise Disclosure Document (FDD). This lengthy legal document provides information about 23 specific areas of the franchise, including:
- Initial and ongoing costs
- Any litigation the franchisor has been involved in
- List of franchise outlets and current and former franchisees
- Financial statements for the past three years
- Your obligations as a franchisor (i.e., the services you’ll provide, such as training or advertising support)
- How renewal, termination, transfer and dispute resolution will be handled
Creating and preparing these documents requires legal assistance that can be time-consuming and costly. If you don’t have the patience or budget to handle this part of the process, you may not be ready for franchising.
Is there a market for my concept?
A business idea that is successful in one city or state (such as Hawaiian shaved ice) may not translate to other parts of the U.S. where consumers aren’t familiar with it. Before you start franchising, do your homework and ask:
- Is my concept well-known in this part of the country, or will I have to educate consumers on what I’m selling?
- Is there enough of my target customer base in the regions I’m considering?
- Do these regions have a good supply of potential franchisees? For example, if your concept requires white-collar management experience, franchising in big cities might yield more franchisees than in a rural area.
Is my business in good shape financially?
It’s recommended to have at least three successful locations up and running smoothly and profitably before you contemplate franchising. Opening multiple locations will help you understand what’s involved in getting new locations up to speed.
You’ll also need sufficient working capital to:
- Develop all the necessary legal documents
- Market your concept to potential franchisees via advertising and trade shows
- Hire salespeople to sell the franchises
- Provide training and ongoing support to new franchisees
All of this can easily add up to hundreds of thousands of dollars or more. If you can’t finance this internally, seek outside sources of financing.
Do I like managing people?
If you love the hands-on aspects of your business, be prepared to wave goodbye to it as a franchisor. Instead of dealing with the day-to-day operations of one location, you’ll take on the role of a corporate manager. You’ll be responsible for things like:
- Searching out new areas for franchise expansion
- Developing marketing plans for your franchise concept
- Assessing prospective franchisees
- Training new franchisees
- Providing franchisees with ongoing support
If you don’t want to switch into this management-oriented role, you’ll need to promote or hire a trusted manager who can lead your franchising efforts.
Does franchising sound like the best path for you? If so, your SCORE mentor can help you decide if it’s realistic and get you on the journey to success.