Want to grow your business and increase the number of locations? One of the fastest and most efficient options is franchising. But before you go down this route, you need to be sure you have all of your proverbial ducks in a row.
Benefits of Franchising
Not every business is suitable for franchising. And even for those that have the right business model to pivot in this direction, it can be challenging. But for those that make it work, there are numerous benefits waiting on the other side. This may include:
- Franchising forces you to perfect your processes and make them repeatable. This increases your scalability and enhances your ability to grow over time. (Both through franchising, as well as within individual franchise units.)
- Larger footprint. While the concept of geographic footprint has changed in the age of ecommerce and digital marketing, there’s still something to be said for expanding your reach through a more diverse physical presence. This is especially important for businesses that require storefronts, like restaurants and other service-based businesses.
- Lower risk. When you own and operate your business, you’re forced to take on 100 percent of the risk. This includes financial risk (hiring employees), legal risk (if something happens on your property), and other damages. With franchising, you still have risk, but each franchise owner is responsible for paying their own employees, dealing with legal headaches, and other issues. In this regard, it’s better than just opening up a second store/location on your own.
- Cost-efficiency. As you increase your business to include additional franchises, you’re able to do everything at scale. From raw inventory to basic services like accounting, you can access bulk prices and enjoy discounted overhead rates. This increases profitability across the board.
Franchising doesn’t come without its own set of risks. You’ll be forced to give up some level of control, you’ll face increased complexities related to taxes and state laws, and you’ll have to share a percentage of your profits with franchise owners. Having said that, the pros tend to outweigh the cons (as long as you execute correctly).
6 Tips for Franchising
If you want to make the most out of a franchising opportunity for your business, you’ll need to be smart and intentional with your approach. Here are a few suggestions:
- Be Prepared for the Cost
You’re thinking about franchising because you want to grow your business and ultimately bring in more revenue. But as is the case with almost any business or investment, it takes money to make money. Make sure you’re prepared for the upfront costs required to franchise your business.
When we talk about upfront or initial costs, we’re discussing the franchise development process. This includes competitively positioning your franchise, preparing your franchise disclosure document (FDD), establishing your legal infrastructure, developing your operations manual, and systematizing anything that isn’t already scalable. This typically costs somewhere in the range of $18,500 to $84,500. (That’s a wide range, but every situation is unique).
- Make Sure You’re Organized
Almost any business owner who considers franchising has a proof of concept. In other words, the underlying business works. The biggest difference between successfully franchising a business and flopping is often tied to organization and clarity. Successful franchises are highly organized, resulting in very little confusion.
Increase your chances of success by investing in the right tools and systems. This may include a POS for franchise, a bookkeeping service, or even a CRM platform that helps you get a big picture view of your customers.
- Get Clear On Your Concept
Just because you have a successful standalone business, doesn’t mean you can automatically franchise it. In order for the concept to work at scale, you have to be very clear on your concept.
“Every step of the business must be included in your system, and that means the franchisor must know their business inside and out,” entrepreneur Jason Helfrich writes. “You can’t expect your franchisees to understand the business if the franchisor doesn’t have a clear, defined concept themselves. Any directions on the operation of the business must be provided to each franchisee explicitly.”
If there’s any confusion, or any aspects of the business that need to be clarified or articulated, do this on the front end. It’ll save you a lot of effort and confusion down the road.
- Be Selective With Franchisees
When you begin accepting applications for franchisees, it’s tempting to accept the first person who expresses interest (especially when there’s a healthy sum of money on the table). But it’s much more important that you accept the right franchisees.
The first franchise is very important. It basically acts as your proof of concept. If it does well, then you have the financial resources and motivation to add a second, third, etc. But if the first one fails, your dreams of franchising could be over before they start.
- Invest in Training
Choose franchisees who have some experience and lots of motivation. They don’t necessarily have to understand your business or how it works, however. As long as they have passion, you can fill the other gaps with targeted training.
Don’t be afraid to spend on training. It’ll feel like you’re pouring money down the drain upfront, but the long-term ROI is invaluable. Think of this as the gasoline to the engine. Without proper and thorough training, you can’t go anywhere. But with the right training, that engine will purr!
- Systemize and Improve
Efficiency and repeatability are major tenets of successful franchising. You should try things out first in your store. Once you’ve proven that it’s successful, create a standard operating procedure (SOP). This SOP can be sent to each franchise and implemented as part of the overall franchise plan. If something doesn’t work at scale, bring it back for more testing. Don’t be afraid to iterate!
Adding it All Up
When it comes to franchising your business, there’s no guarantee that you’ll be successful. However, an increased emphasis on the aforementioned tips and strategies will increase your odds and make it all the more likely that you’ll get the best possible results.