If you want to see your brand become a household name, franchise your small business. “Franchising is one of the quickest ways to grow a company,” says Michael Ciccarelli, senior vice president for Franchise Group LLC, a consulting firm based in Atlanta, Georgia. “As a franchise, you have other people with a vested interest in your business and your brand being successful.”
A report from the International Franchise Association reports that sales from franchised businesses rose 5.4 percent in 2015, up from 4.8 the previous year. The study also predicted an increase in jobs at franchises for 2016.
Although franchising sounds like a win-win situation, there are many things to consider before heading down this road. Ask yourself these five important questions before you make the move.
1. Do you have the right business model?
Franchises span dozens of industries, from restaurant chains to real estate companies. Small businesses with the most franchise potential have the following qualities:
- Familiarity with originality. Massage is nothing new, but Massage Envy’s extended hours, easy appointment scheduling, and affordable prices make it a nationwide hit.
- Adaptability. Is there a demand for your product or service in other regions of the United States?
- Easily replicated. Do you have to have systems and processes in place that franchisees can use to run their business?
2. Are you financially ready?
“It’s critical that a business is proven and has two to three years of operational history,” says Ciccarelli. “Ask yourself, would franchisees get at least 20 percent return on their investment in two to four years?”
If your pasta shop successfully opened two additional locations in your region, you are on your way to franchise success. Five Guys Burgers and Fries grew from one burger joint to five before it franchised. It now has more than 1,000 locations nationwide.
“A franchisee is making a big investment,” says Ciccarelli. “They have to know that they can replicate that business and that you have proven systems, processes, and infrastructure in place to support franchisees.”
4. Are you willing to take on new responsibilities?
Small business owners wear many hats. As a franchisor, you will likely take on new tasks designed to help franchisees run their businesses successfully.
“The franchisor will have to continually refine and improve systems, processes, infrastructure, and resources to support their franchisees,” Ciccarelli says. “This will help create strong-unit economics and positive franchisee and franchisor relationships, which are two critical components of a healthy franchise system.” For specialized roles, he recommends considering outside resources, such as franchise consulting and development firms, to help develop sales and marketing strategies, provide territorial planning, and navigate legal and regulatory requirements.
5. Are you prepared to take the financial risk?
It could cost $250,000 or more to franchise a business according to the Small Business Administration. Initial costs include legal, consulting, and accounting fees, marketing materials, franchisee training manuals and systems, and more.
While franchising isn’t a guaranteed path to riches, with the right concept and strategic planning, a small business has the potential for mainstream appeal. As Ciccarelli says, “If you have the right business model, a franchise operation can perform as well as, or better than, company operated businesses.”
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