What you need to know before expanding your business into the franchise industry.
Thinking about franchising your business concept? Here are 10 things you need to know before you take on the role of franchisor.
Understand that franchising is a different business. Franchisors have different roles and responsibilities compared to a regular business owner.
According to the International Franchising Association (IFA), “Franchising is simply a method for expanding a business and distributing goods and services through a licensing relationship.”
In a franchise system, a company grants license to a third party for the right to conduct business under their name. The company is able to specify the products and services offered by the franchisee, and provide the franchisee with an operating system, brand and support. This means that you won’t be working with employees; you will be working with business owners who signed into your concept.
Trademark your name. Don’t forget one of the most obvious tasks of a franchisor—trademark your name. This step should be one of your first into franchising. According to Steve Beagelman, president and CEO of SMB Franchise Advisors, people are buying into the brand to use the name.
Have a successful and proven concept. Beagelman says that businesses should ensure that they have a concept that has been proven to be a success and turn a profit. Just because you have a business doesn’t mean it’s successful. Just think, who would want to buy into a franchise where the business is losing money and failing?
Achieve positive sales trends. If you’re franchising your concept, it’s important that your business is continuing to be in the black, or on the way there. If your business is continuing to go down year after year, it won’t be able to support a franchise model. Make sure to have the proper financial footing start a franchising endeavor.
Be a concept that can be duplicated and replicated. It may sound obvious, but if you want to franchise a business the concept has to be something that will work in another market.
“It can’t be so unique to you,” Beagelman said. “You can’t be the only one who can do something. You can’t franchise that. It has to be a concept franchisees can follow a proven system, recipe and look.”
Plan for the future. “Think through where your business is today and where it will be tomorrow so you can add something to your contract that will allow you to grow and change your business,” says Kay Ainsley, CFE, managing director of MSA Worldwide.
Don’t create a franchise concept that will be become out-of-date one day. Consider what the future of the business will be and leave room to grow.
Make sure you have the proper funds. You don’t have to have it all on day one, but you need to make sure you’re financially set to start franchising your business. Ainsley suggests having access to all the capitol you will need within 18 to 24 months.
“Have your financing in order,” says Ainsley. “Staring out when you’re under financed is a big mistake. When a franchisor runs out of money, they won’t have the money to get the word out that you’re a franchisor now. That’s not how to get a good start.”
Remember: you’re managing a networker of owners, not paid staff. According to Ainsley, the single most important thing to remember is that you’re entering a new business model. There is a difference between owning your own business where you call all the shots and becoming a franchisor where your ability is limited by contract. While a business owner can control all of the tiny moving parts, a franchisor has to be able to lead franchisees.
Support your franchisees. You need to provide franchisees with the support and assistance that they will need throughout the franchising process. As a franchisor, you can’t keep things to yourself; everyone must be able to succeed within your business model. Franchisees pay a franchise fee and royalties, they want you to help them when they need it and you have to help.
“You need to be willing to listen to your franchisees,” says Beagelman. “It’s a big responsibility to run the brand and protect them.”
Start close to home. “You want to make your first franchisee successful so you will be working with them a lot,” says Ainsley.
You don’t want to travel far to help out your first franchise location. Being able to drive in and help out will be more beneficial than having to book a flight and spend a day traveling. If you’re too far away and you have to leave a franchise along too much, you risk your first location not being the exact franchise model you have been planning and hoping for.