Thinking of Franchising Your Business? Here’s What You Need to Know.

Thinking of Franchising Your Business? Here’s What You Need to Know.

Thinking of Franchising Your Business? Here’s What You Need to Know.

Opinions expressed by Entrepreneur contributors are their own.

Who can take credit for being the first to implement the franchising model is debatable. According to this report by the International Franchise Association, it is widely believed the first franchisor in the U.S. was the Singer Sewing Machine Company in 1851. The same report also contends that others credit Martha Matilda Harper — who built a network of beauty salons with a retail component. — to be the first franchisor. Then, of course, there’s the McDonald’s story, with Ray Kroc’s involvement, that many refer to as arguably one of the first forays into food service franchising.

Why am I mentioning all of this?

As I’ve witnessed in the twenty-or-so years that I’ve been involved in franchising (on the franchisor, franchisee, and consultant sides of the industry), it demonstrates that franchising was — and still is — a viable business expansion model with a long track record. Over the decades, franchising has come into its own, from a novel idea for business growth to a sophisticated, regulated way of doing business that benefits both the franchisor and its franchisees. Since that first handshake deal, savvy entrepreneurs have developed best practices and trainable systems to help people, from corporate escapees who buy a single franchised unit to highly capitalized, large multi-territory owners, to build sustainable businesses.

Franchising is often considered an enormous and growing industry in and of itself, and its principles are employed by countless other industries and business models, from restaurants to automobile services to beauty salons and retail stores, to all kinds of B2C and B2B services. Even dentists and dermatologists (and those in numerous other healthcare segments) are enjoying the benefits of franchising their business models.

Related: Franchising Is Not For Everyone. Explore These Lucrative Alternatives to Expand Your Business.

Applying the franchise model

The word “franchise” is derived from the French word franc, which means free. But don’t be fooled into thinking franchising is free or even inexpensive. It’s a significant commitment and one that a business owner should investigate thoroughly, starting with some self-examination. For example, you will want to ask yourself:

  • Do I have adequate resources, both people and money, to expand through franchising? (As noted above, franchising is not a “no-cost” effort for the emerging franchisor. You will need to, at minimum, develop franchise legal documents and an operations manual; business planning and marketing tools are also key. So, you’ll want to leverage your current business’ capital and human resources, but do so without over-extending yourself.)
  • Can I handle risk when it involves both my finances and other people’s capital?
  • Am I collaborative and interested in building long-term relationships with franchisees (vs. employees)?
  • Do I have strong leadership skills and a team that inspires trust?

Once you’ve analyzed yourself as a business owner and potential franchisor, it’s time to do the same analysis with your business to determine if it is indeed franchisable:

  • Do you have a single unit open or several in operation, and is it/are they profitable?
  • Do you have a product, service, or system that, with proper training and guidance, can be duplicated in other markets?
  • Are all your systems dialed in so that they can be quickly learned by someone who may or may not have experience in your industry?
  • Can you show investors who will become your franchisees that they can build a solid business following your blueprint?
  • Will your business, if franchised, provide a solid ROI for both franchisor and franchisee?

You may not even have all the answers to these questions, and that’s okay. This is the time to talk to franchise specialists who have helped businesses like yours enjoy the benefits of franchising and who can help determine if you’re ready to take the next step.

Forging the right path

A fact that sometimes gets lost in the equation is that once you make the move from business owner to franchisor, your day-to-day business responsibilities shift, requiring a different mindset. You’re no longer grooming dogs; you’re setting up others in business to groom dogs — or train their employees to change tires or make sandwiches. Your business is now focused on selling franchises and supporting franchisees.

It’s also important to know that before committing to you, potential franchisees will want assurances that your concept has the legs to travel to other communities where your brand is not known and still attracts enough customers to make it viable.

Let’s say you have a pizza concept. People rave about your pizza, and you’ve had several customers ask if you plan to franchise your concept. While it’s always flattering to have people want to duplicate what you have in their neighborhood, there’s more to it. Everyone who owns a pizza shop will tell you they have the best-tasting pizza in the world.

In order to start a successful franchise brand, you need, yes, a product people crave, but also something that will distinguish you from the competition. You need detailed recipes, proven systems, well-documented procedures, a well-formulated (and trademarkable!) brand, a solid marketing plan, and an established supply chain. Proprietary products and operational tools are helpful, too.

In the end, you must offer prospective franchisees advantages that are better or at least equal to what your competition is offering and that they couldn’t easily develop themselves.

Getting the help you need

Of course, as a business owner, you don’t have to do this franchise preparation work all on your own. Franchise advisors can help you create manuals, training materials, and marketing plans, while franchise lawyers and accountants can develop the necessary legal documents and financial audits. Note, however, that franchising is a specialized field, so you want people who understand franchising’s unique structures, laws and practices. This is not the time to try to save money by hiring a personal contact who just started working as a solo operator or for a firm that has limited franchising experience.

All the professional consulting and guidance in the world, however, won’t help you if you don’t have the spark that will ignite your business into a hot concept a franchise salesperson can sell. Plus, you need to have patience and not jump on the first person who shows an interest. After you’ve built your franchise model and begun (legally) offering franchises, franchisee selection becomes one of the most important tasks to undertake. There’s a reason why even some of the most established franchise systems have a high ratio of rejection to acceptance when it comes to choosing franchisees to join their brands.

One of the tenets of franchising is consistency, not just in a single store but throughout the system. When they order from a McDonald’s, consumers want the same hamburger and fries in Portland, Oregon, as in Portland, Maine. They also have certain expectations, such as the restrooms will be clean, the service will be friendly. That’s why hotel chains are so popular with seasoned travelers: road warriors don’t want any surprises when it comes to where they spend the night away from home.

Final thoughts

Another consideration when evaluating the possibility of franchising a business is the popular interview question we’ve likely all been asked: Where do you see yourself in five years? Or, to ask it another way, what’s your appetite for both risk and growth? How fast do you want to grow? Do you want to grow to be a regional, national or even international chain?

Determining your goals is key. And timing your franchising efforts is equally important. There is something to be said for taking your time and waiting until everything is perfected before franchising your business. But the problem with this approach is that by the time you’re ready to launch, your competition may already have dozens — or hundreds — of units already opened. Being first to market has its advantages, but it’s still a juggling act because you don’t want to take your one shot and misfire. Although it’s possible to make tweaks to your system as you grow, you don’t want to confuse customers (and franchisees) by constantly changing core items people are coming specifically to you to get.

Deciding when the time is right to franchise your concept can be overwhelming unless you spend time doing your due diligence, along with some soul-searching. Whether you have a passion for your product or services and want others to benefit from it, too, or you’re counting on franchising as a retirement vehicle, franchising will be a career- and life-altering choice for you and your organization. But, best of all, you’ll be following in the footsteps of some giants in entrepreneurship.

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