10 Things Businesses Need to Know About Becoming a Franchise

Businesses have been turning to the franchise business model for decades to grow their brands on a national and even global level. By working together with local franchisees, business owners are able to expand in ways that they couldn’t on their own. But becoming a franchise isn’t a simple process, and brands need to be prepared before they break into the industry. That’s why 1851 Franchise spoke to some of the industry’s top consultants for their top tips.

These are the 10 things that businesses need to know about becoming a franchise.

1. Clear Your Mental Hurdles First

Breaking into the franchising industry is a big step. That’s why there are a lot of mental hurdles for franchisors to overcome, from managing the roles and responsibilities that come with having franchisees to letting go of complete control over their concept. But dealing with those roadblocks from the get-go is well worth it in the end.

“Business owners need to have some type of vision, purpose or mission for growing their brand. Whether they’re selling a product or service, they need to know why they want to expand. And that reason should extend beyond the obvious desire to make money,” said Lou DeFrancisco, a franchise consultant who also boasts years of experience on the corporate side of the franchising industry. “There are a lot of mental hurdles that come with franchising. It takes a different skill set to operate a franchise than it does to run the daily operations of a business, and that’s often a big adjustment for franchisors. But by understanding that you’re taking your business to a different level beforehand, you’ll be much better off in the long run.”

2. Have a Business that Can Be Replicated

At its core, franchising is a successful business model because different local owners can duplicate a proven concept in their own communities. That’s why business owners need to be confident that every aspect of their brand can be replicated before becoming a franchise. Without that part of the equation, a franchise will fail to get off the ground.

“Being able to replicate a concept is essential in franchising. Even if you have the coolest concept, if you’re the only one who can operate it, franchising isn’t for you,” said Steve Beagelman, president and CEO of SMB Franchise Advisors*.

3. Be Willing to Invest in Your Franchisees

A business’ work is far from over when a franchisee signs their agreement. Local owners aren’t in business by themselves—they’re relying on their franchisor for support. To fulfill that promise, brands need to be prepared to lend a helping hand, especially as an emerging concept.

“When you sell that first franchise in a different city, how are you going to support them and provide proper training? How many days will you be able to spend with them as they get their location up and running? You need to have a plan in place to provide the necessary support,” said Beagelman. “With royalties and franchise fees, you’re receiving a lot from your franchisees. And as the franchisor, you need to be prepared to help your local owners succeed.”

4. Who You Partner with Matters

Franchising isn’t something that businesses can do on their own. From creating a Franchise Disclosure Document to keeping track of different state regulations, brands need to bring in the professionals to get their emerging franchises up and running. And working with the right people is incredibly important.

“It takes a village to make a brand successful. Businesses should be confident in their partners, from the local owners they work with to the consultants and professional teams they rely on for support,” said DeFrancisco. “You want to make sure that you’re not putting yourself of your brand in harm’s way. There are a lot of rules and regulations to stay on top of, and franchisors need to be working with people who will help them stay on the right track.”

5. Strong Unit Economics Can Make or Break a Brand

It isn’t enough to franchise your business to make money as the franchisor. The franchisees who sign on to operate their own units also need to make a living so that they can provide for their families and lifestyle. In order for that to happen, your business needs to be able to return strong returns on the unit level, taking into consideration the fees that local owners are responsible for.

“It all starts with your unit economics. You need to ask yourself, ‘Does my business produce profits? Are my franchisees going to see an adequate return on their investment?’ That math needs to be figured out before you become a franchise,” said Lonnie Helgerson, president of Helgerson Franchise Group. “Without the possibility of strong unit level economics, you’re going to have a tough time convincing candidates to sign on board.”

6. Don’t Underestimate the Cost of Becoming a Franchise Concept

You can’t become a franchise concept overnight. There’s a lot of hard work that goes into preparing a brand for the industry, and that work requires money. Businesses need to be aware of the costs that they’re going to face before they start the process to ensure that they can see it through. Otherwise, those delays will result in even more bills.

“Business cannot underestimate the cost that comes with becoming a franchise. Once you factor in the cost of creating an FDD, consultants, marketing and manuals, that number starts to add up incredibly fast,” said Helgerson. “Having the financial capital to afford those things can take time. But it’s essential for brands that are willing to grow.”

7. Plan for a Learning Curve

Financial capital isn’t the only thing that businesses should plan for before becoming a franchise. It also takes time to get an emerging concept off the ground. That’s because there’s a learning curve that comes with franchising—it’s often a new industry for business owners, and there are a lot of new rules and different language nuances that need to be understood before you can really hit the ground running.

“Understanding what the franchising business model is all about takes some time. And you won’t know how you handle the business model until you dive in,” said Helgerson. “For example, you may find that franchise development isn’t your strong spot, so you need to hire someone else to help you out. That’s all a part of the process, and taking the time to go through it helps brands in the long run.”

8. Your Concept Needs to be Affordable

Making sure that your franchisees have the potential to see a strong return on their investment isn’t the only financial factor that should be taken into consideration when becoming a franchise. Your business model also needs to be affordable for aspiring entrepreneurs—if people don’t have the resources to invest in your concept, they’ll go somewhere else.

“The startup costs associated with each franchise will vary depending on a brand’s industry and requirements. And of course, everyone’s definition of ‘affordable’ is different. But your investment range needs to align with your concept and industry standards,” said Beagelman. “Your business ownership opportunity needs to make sense from an economic standpoint. Otherwise, people won’t invest in it.”

9. Know Your Expectations Before Becoming a Franchise

Just like business owners need to know why they’re expanding through franchising, they also need to set goals. Expanding for the sake of it isn’t going to propel a brand forward—instead, franchisors should have an end in mind they’re working towards. However, those expectations also need to be realistic.

“It’s hugely important to talk about expectations and goals so that you know what you’re working towards. But telling me that you want to open up 500 locations in five years isn’t going to help,” said Helgerson. “Having a strategic plan in place will help guide your decisions as you expand, and will ultimately mark major milestones worth celebrating.”

10. Franchising Is Not for the Faint of Heart

Growing with the help of franchisees doesn’t mean less work for business owners. While the business model comes with numerous competitive advantages, it also requires solid preparation and ongoing upkeep. And according to Helgerson, the more businesses that are made aware of that before breaking into the industry, the better.

“Franchising isn’t for the faint of heart. It takes time and resources to build a brand, and businesses need to know that going into the process to be properly prepared,” said Helgerson. “Creating an emerging system’s DNA from the ground up isn’t an easy task, but if you’re willing to put in the work, it’s well worth it in the end.”