Franchising Your Business

Alan Melton

Franchising your business can be an exciting and lucrative decision … but there’s much to consider before stepping onto that path. Ask yourself these questions first.

Is Your Business Ready for Franchising?

Can it be replicated? You must have the programs, systems, processes, documents, and framework that can be re-created and implemented by individual franchise owners.

Are your sales/profitability high enough? Though being profitable is not a requirement for franchising, it certainly is something that a franchisee would desire before choosing to buy.

Does your business model offer something new or different? Having a unique twist in your business goes a long way to its marketability as a franchise and as a draw to consumers – maybe it’s home delivery, fresh-to-market products, or 24-hour service.

Do you have more than one location already? If you’ve already opened more other locations, you’ve proven that it can be duplicated and be successful somewhere else.

Can You Afford to Franchise Your Business?

The process of franchising your business will be expensive. Do you have the funds to do it?

It’s recommended to engage a franchising expert. We provide that service; if you are interested you can schedule a consultation here.

You’ll need to put in the expenses to ensure your business is properly structured for franchising.

A lawyer will be needed for legal documents and services like contracts, confidentiality agreements, and trademark and copyright protections.

You’ll need to engage a technical writer to create business documents like policies, procedures, user guides, training materials, and templates.

Knowing how to charge the franchisee as far as start-up costs, royalties, or other compensation will help you determine if this is the right choice for you over the long-term.

Is It the Right Time for Franchising Your Business?

Are you at a point where you’re ready to let go of control?

Do you have the time to work on this process (while not focusing on the existing business)? This could include tasks like:

  • Being ready to pitch the franchise to prospective buyers
  • Determining requirements for franchisees, such as:
    • Experience
    • Education
    • Management style
    • Computer skills
    • Creditworthiness and financial stability
    • Personal background (bankruptcy, criminal history, business failures, etc.)

Note: Choosing the right candidates to run a franchise is key to maintaining the reputation of your business and avoiding legal ramifications.

  • Setting franchise purchase price and cost structure. Set it too low – may not return the investment you made in research, planning, and development, plus it might make your franchise seem valueless. Set it too high – could scare off potential buyers.
  • Considering which areas of the U.S. or world in which your franchise would prosper. Example of bad location – setting up a tulip shop in Holland, locating near similar businesses, or picking a site that will eventually by blocked by new construction.

Before choosing a location, make yourself aware of planned local changes to laws or zoning as well as upcoming projects such as construction or road projects.

  • Developing the training, guidelines, policies or other necessary documentation.

Do You Know the Demand for this Franchise?

Have you done the research to prove the market would welcome your franchise? Know the right demographic to which you’ll market.

Do You Know the Related Laws and Regulations?

State and federal paperwork, approvals, and fees can be very time-consuming and expensive.

You’ll be required to provide detailed and accurate business, sales, personal, and financial records.

What Kind of Business Model Will You Use For Franchising Your Business?

You’ll need to set up a model for many aspects, like:

  • geographic locations and sizes
  • approaches for advertising and marketing” href=”smallbusinesscoach.org”>marketing
  • practices for human resources
  • brick-and-mortar, online, mobile, or home-based options
  • staffing needs
  • branding (including signage, logos, uniforms, etc.)
  • customer service and retention
  • interior and exterior design
  • ordering and shipping guidelines
  • compliance with all food, health, and safety standards
  • training
  • term of contract
  • inventory and storage needs
  • selection of vendors and service providers
  • auditing (to ensure compliance with agreed contract)

What are the Risks of Franchising Your Business?

The major risks in franchising your business can come from:

Changes in consumer tastes/fads, economy, or technology. New innovations and shifts in consumer purchasing can bring down not only your franchise, but also your original business. Consider why compaines like Blockbuster or Radio Shack went out of business.

Damage to your reputation or brand. If the franchisee isn’t following the guidelines as set by you or the Federal Trade Commission, serious harm can occur to your business name.

Failure of franchisee. Over time, lack of the appropriate skills or insufficient funds to support the franchise can result in shutdown.

Lawsuits from franchisees. Half of all litigation against franchisors result from misrepresentations made by franchisors or their consultants.

Potential employer liability. The franchisor can be liable for mistakes in employment practices made by the franchisee.

Making the decision to franchise your business will take considerable thought, time, resources, and money. You could gain considerable wealth if it’s done right. As an alternative to franchising, consider licensing your business. You can read about licensing your business here.