What Does it take to be a Franchisor?
What Does it Take to Be a Franchisor?
Julie Lusthaus, Franchise and Business Law Attorney
Two important questions to consider when deciding whether to take the leap into franchising your business: 1. Should you franchise your business? 2. Are you ready to franchise your business?
How to Determine if Franchising is Right for You
You have a great business. Things are running smoothly, and you are making money. Is the next logical step to franchise? Maybe, maybe not. Having a successful business does not necessarily translate into having a successful franchise system. For every McDonalds, Hertz and Choice Hotel, there are countless businesses that could not and should not franchise. Some business concepts are more franchisable than others. Here are six factors you should consider when analyzing whether you should franchise your business.
1. Differentiation. Is your product, service or business model unique? Do you have a recognizable and memorable brand? Can you clearly identify what makes your business stand out from the crowd and sets you apart from your competitors? 2. Credibility. Do you have a solid foundation of success? Have you been around long enough to have a proven track record, a strong reputation and well-defined management and operations processes? If your trademarks, logos, services and systems of operation are not viewed by others as valuable, no one will be willing to pay for them. 3. Replicability. Is your business model easy to replicate? Will it work in other markets? If your products or services are dependent on your locale, this is a red flag and the business is probably not a candidate for franchising. If your business is dependent on your personal brand or effort, it may not be appropriate for franchising. 4. Teachability. You will have to have a training program in place for your future franchisees. Are your systems well defined enough that they are easy to learn? Do you have processes in place? Are your concepts broad enough that most people can learn them? If your business is highly technical or requires very specific skills, it may not be a great fit for franchising. 5. Marketability. This element requires research and understanding of the market and its relationship to the viability of your business. What is the market for your business as a franchise? Is there room for growth, or is there saturation? Who are your competitors and can you compete with them? What are the prospects for growth? Determining the potential for growth for franchisees is also key. This may be one of the most important elements in helping you determine if franchising is right for you, so invest some time in this research. 6. Profitability. Profitability is critical for your success as a franchisor and for attracting franchisees. Potential buyers must be able to earn an attractive profit after paying royalties and other fees. Low profit margins will not make for successful franchisees.
Franchising is a Good Idea for Me. Am I ready?
Once you determine that you have a “franchisable” concept, you will want to ensure that you are ready for the next step. Are you prepared to invest the time and money it takes to enter the realm of franchising? Operating a franchise is a business in and of itself. You will either need to have someone help you run your existing business or be prepared to invest enough time and money into both your existing business and your franchise system. Here are some things to consider when determining if now is the right time to become a franchisor.
1. Shifting your business focus. This will be a big change in your business. Are you ready for something completely new? As a franchisor, your business now will be selling franchises and servicing franchisees. You will need to rely on the entrepreneurial spirit that helped you make your first business successful. 2. Financing. Can you get funding? Business plans, legal documents, operation manuals, marketing materials and other expenses are a major part of start-upcosts. You will also need support staff to sell franchises and to train and support franchisees. If you do not have these costs covered, you will need to secure financing. 3. Time. As with any new venture, dedicated time to launch and grow your business is critical. Are you able to work more hours to launch your franchise system? Starting any new business takes time. Not only is time required to launch a franchise system, but once it’s up and running, onboarding franchisees requires a commitment of time in connection with training and site selection. 4. Supporting franchisees. Do you have a desire to mentor other business owners – your franchisees? Do you have the leadership and business skills to help them be successful? A big reason people buy franchises is because they know they will have support and experience to help them be successful. Are you ready to make their success your priority?
If you have looked at your business and yourself and have determined not only that your business is a good fit for franchising but also, that you are ready to take on the challenge, now is the time!
Julie Lusthaus represents franchisors, franchisees and independent business owners. To learn more, visit her website at www.lusthausfranchiselaw.com.