How to Know When You're Ready to Franchise Your Business

Franchising can be a strategic way to expand a business, but it comes with its own set of challenges and requirements. 1851 Franchise spoke with Kyle Zagrodzky, CEO of OsteoStrong to gain some insights on determining when a business is ready to franchise and whether franchising is always the right strategy for growing a brand. 

Evaluate Your Business Model and Financial Readiness

The appeal of franchising for many lies in its scalability. But to be able to scale, the model needs to be replicable. The first step to deciding if you’re ready to franchise your business is to critically evaluate whether your business model is robust and replicable. You will need to ensure your business systems and processes are well-documented and proven. 

Even once you have established that your business model can be repeated, you need to ensure franchising is something you can afford. Franchising is often seen as a cost-effective way to expand, but it's not without its financial requirements. Be sure you are well capitalized and prepared to invest in your brand, which will hopefully pay off in the long run. 

“You end up spending a lot of effort and expense on managing around regulations,” Zagrodzky said. “Franchising is highly regulated and those regulations change from state to state, so that adds a lot of inertia and expense to not only starting a franchise but also managing it.”  

This includes the costs of creating franchise agreements, compliance with state regulations and ongoing support for franchisees. If you lack the capital to open multiple locations on your own, franchising can be a viable alternative, but bear in mind there are still many costs associated with this transition. You must be prepared to support your franchisees if you want your franchise to be successful, which comes at a cost.

Understand the Commitment to Regulation and Support

Although there is a great deal of regulation in franchising, it is designed to protect both franchisees and the franchisor. So while it exists for good reason, it’s vital to comply and you should ensure you are able to do so before expanding through franchising. One particularly important component with regards to regulation is the Franchise Disclosure Document (FDD). Be sure your FDD is airtight before you launch any franchise opportunities. 

“In some states, it’s a criminal offense to even offer or talk about your franchise if you don’t have your FDD approved and certified,” warned Zagrodzky. 

The FDD should transparently describe both the franchisee’s and franchisor’s responsibilities and obligations. This commitment extends beyond initial setup to ongoing support and management. Your ability to scale operations and provide consistent, quality support to franchisees is crucial.

Have a Solid Exit Strategy

One of the benefits of franchising beyond the expedited growth potential is the eventual potential for a lucrative exit. However, to get the most out of your exit, your strategy should be formulated before you even begin so that you can work towards the best exit possible.

“The exit strategy for a franchisor is great because you can get substantially higher business valuation on a franchise than you can on a corporate-owned center,” said Zagrodzky. 

If selling your business at a high valuation is part of your long-term plan, franchising could be a strategic move. With your exit strategy in mind, you can tailor your growth strategy to meet your goals.

Build a Solid Team and Select the Right Franchisees

Once you decide to grow to multiple locations, you lose the ability to be physically present and involved in each one — you can’t be in multiple places at once. You’ll need to build a robust and reliable team and infrastructure to help you oversee the business.

“As you start to get to 25 locations, you’ve got to be able to scale, which is to say you operationally have to be able to step outside of you handling the problems and have a team that allows you to do that,” Zagrodzky said. 

This means having robust training, marketing and operational support systems in place. A common pitfall is growing too quickly without the infrastructure to support new franchisees, leading to operational failures.

And speaking of franchisees, choosing the right candidates is critical to your success. 

“If you get bad franchisees on the front end, it could really slow down your brand,” said Zagrodzky. 

Negative experiences from franchisees can tarnish your reputation and hinder growth; on the flip side, an excellent franchisee represents your brand well and can build your brand’s consumer loyalty and success.

Franchising can offer significant growth opportunities, but it requires careful planning, substantial investment and a commitment to regulatory compliance and operational excellence. If you’re ready to scale thoughtfully and have the resources to support your franchisees, franchising could be the right path for your business.

Every great franchisee had help buying a franchise. Want to learn more about how 1851 helps franchisees find the right franchise opportunity? Visit www.1851growthclub.com and start your journey.