When is the right time to franchise my business?

Today, the franchise industry is expected to grow and create more jobs at a faster pace than the rest of the economy for a fifth consecutive year. With over 781,794 establishments, locally owned franchise businesses are in every community.  Altogether, franchised businesses pulled in close to $1 trillion in 2014, an increase of 5.6 percent from 2014, according to Franchise Business Economic Outlook for 2015  by IHS Economics. With the number of economic output, jobs created and franchise sales increasing every day, franchising is an unparalleled force in the world of business growth.

Although the franchise strategy may not cohere to every business model, it is important to take a look into the accelerated potential that franchising affords. So how does one know when it is the right time to franchise their business? Let’s first take a look at why some businesses decide to franchise.

Why franchise?

Franchising is not only an opportunity to expand your brand quickly, it also allows other people to invest in your brand, in the local market and develop your model throughout several locations.  Franchisees are also responsible for all unit-opening expenses, including leasing and hiring, which will allow you to expand your brand faster while using franchisee capital. Franchisees can also openly quickly as stated above and get a concept out ahead of the competition.

What makes a business ‘franchisable?’

According to Steve Beagelman, President and CEO of SMB Franchise Advisors*, business owners must have a replicable model in order to be considered ‘franchisable.’ A franchise cannot be so unique that no one would ever be able to localize the business in their market. A business owner must also have a clean track record and success in operating their location before franchising. “These days anyone can go online and instantly research your company to find out its reputation,” said Beagelman. “If you are struggling with prior brand issues, it is best not to franchise right away and hire a publications relations team to help with positive press and SEO.”

Do business owners need more than one location before franchising?

“That is a misnomer,” said Beagelman. “I recommend people franchise after one successful location. If they have a good track record and increasing sales then they can begin breaking into the franchise model. Sometimes with two or more locations your time can be diverted and you will not be able to focus on making your franchise model successful.”

What amount of capital should a business owner have before franchising?

According to Beagelman, business owners should have a minimum of $50K before franchising. The average person will spend about $100K - $200K.  Some clients have even spent as high as a million dollars franchising their business; however it depends on fast the owner would like to expand the brand and build a franchise infrastructure.

What are the major processes business owners must go through before franchising?

“You must have an FDD prepared, as well as an operations manual,” said Beagelman. “Many entrepreneurs have a great concept or business model, but do not have the systems and processes written do in an operations manual. Each manual is typically 150-200 pages of operational procedures that will help your franchisees with day-to-day management, hiring and setting up the business to succeed.”

What are some of the biggest mistakes business owners tend to make when franchising?

“A lot of business owners are under-capitalized, “said Beagelman. “Most business owners also believe the process will happen quicker than it does. Although you may become a legal franchise in approximately six months it does not mean you will make your first sale in the first six months.”

So when is the right time to franchise your business?

There is no ‘right’ time to franchise your business. However, once you have an outstanding reputation, a duplicable model, and have created the operational systems necessary to grow with at least one successful location and a comfortable amount of capital then it may be a good time to start looking into the franchise industry. “The franchising industry can be very rewarding and can help you work on your business not in your business,” said Beagelman. “Take your time, franchising is marathon not a sprint.”