10 Tips on When It’s Time to Franchise a Business

Every business owner’s goal is to be successful. Once they find success, growth and replication of that success is usually the next phase.

That being said, success does not make growth easy. Just like success is not found overnight, expansion takes a lot of time, energy and capital. There are, however, ways to cut back on all 3 of those things while still growing your business. One of those ways is deciding to franchise.

1851 caught up with 3 franchising experts to come up with 10 tips on when it’s time to franchise your business.

1. Franchise only when you’ve found success

Steve Beagelman, President and CEO of SMB Franchise Advisors*: “Don’t decide to franchise when you’ve had declining sales, because it’s not a way to dig yourself out of a hole. Franchise when you have a successful business and when people approach you wanting your business in their town. When your concept stands out as unique, that’s when it’s time to franchise.”

2. To achieve expansion more quickly

Gary Occhiogrosso, Franchise and Brand Strategist for Franchise Growth Solutions, LLC: “In my opinion, franchising is the best development tool for emerging branding seeking to expand quickly. It provides an opportunity to grow in new markets while at the same time allows you to grow your brand with limited expansion capital. Franchising places the focus of unit level operating issues on the franchisee.”

3. To achieve expansion at a lower cost

Mark Siebert, CEO & Senior Franchise Consultant of iFranchise Group: “Franchising is an appealing option because it allows a company to expand at a low cost, without the risk of debt or the cost of equity. Since franchisees provide the initial investment at the unit level, franchising allows for expansion with minimal capital investment on the part of the franchisor.”

4. To spread your brand in more than just your home market

Siebert: “From a short-term perspective, franchising a business is a great way to expand into new markets, increase brand recognition and establish your industry presence in an accelerated and highly leveraged way.”

5. To receive a greater return on investment (ROI)

Siebert: “From the standpoint of ROI, franchising is unparalleled, as the franchisees, and not the franchisor, make the investment in opening units.” 

6. To find people who want to grow your brand as much as you do

Siebert: “Longer term, it allows franchisors to capitalize on highly-motivated franchisees who may have invested their life’s savings in a business venture.  And unlike employees, these franchisees will often grow with the company for decades – providing the franchisor with long-term, highly-motivated representatives who will often have as much reverence for the brand as the franchisor does.”

7. To be able to focus on the big picture while others expand your brand

Beagelman: “As a franchisor, you have plenty to focus on and occupy your time. You’ve established a model for success, and as long as people follow that model, your brand will grow through franchising.”

8. To lower risk

Siebert: “Since it's the franchisee, and not the franchisor, who signs the lease and commits to various service contracts, franchising allows for expansion with virtually no contingent liability, thus greatly reducing a franchisor's risk.”

9. To generate greater interest in your successful brand

Occhiogrosso: “In my opinion, franchising is the best development tool for emerging branding seeking to expand quickly. It provides an opportunity to grow in new markets while at the same time allows you to grow your brand with limited expansion capital. It allows opportunities for multiple, residual cash flow streams, and is highly attractive to Wall Street, private equity and other outside investors by creating greater trademark value and higher EBITA multiples upon exit.” 

10. To fight competition and make more money down the line

Occhiogrosso: “Short term benefits allow you to practice a "first in" strategy and create barriers to entry for your competitors. Long term can be everything from a legacy to higher multiples that are placed on royalty driven profit versus bottom line of company units.”