Your business is thriving. Customers keep asking when you’re going to open another location. Some even ask if your business is a franchise—and if they can buy one.
So, you wonder: should you start franchising your concept? Not so fast. Just because your business is successful doesn’t mean it can – or should – be franchised.
Here are five steps to take before franchising your business.
Step 1: Assess your business.
Is your business running smoothly? Do you have operations manuals, training processes and documented systems in place? If you take a vacation, does the business fall apart or run like clockwork?
Do you have multiple locations? Before considering franchising, start small by expanding your business locally or regionally. This proves your concept’s viability outside of its initial location, educates you in managing multiple locations, and raises brand awareness—which helps sell franchises later.
Step 2: Assess your market.
Just as when starting your business, do market research before franchising it. Ask:
- Is the industry growing?
- Is the customer base growing?
- Does the concept have “legs?” A business based on a fad may succeed in one location but has little chance of lasting.
- Who are your competitors and what advantages do you have?
Step 3: Assess your capital needs.
Franchising can be a cost-effective way to grow your business, because franchisees finance their startups, sign their own leases and take responsibility for operating costs.
However, until you actually sell some franchises, you’ll be footing the bill for legal and accounting assistance, franchisee training and support, and marketing and sales costs. Gather adequate capital to finance your franchise plans.
Step 4: Assess yourself.
Being a franchisor is different than being an independent business owner. As a franchisor, your focus will be on selling franchises and supporting your franchisees—not on baking pies, teaching children’s gymnastics or whatever passion encouraged your business. If you don’t have what it takes, hire or partner with someone who does.
Step 5: Get professional help
Franchising requires lots of decisions:
- What criteria you’ll set for franchisees
- What fees and royalties you’ll charge
- Franchisee territories
- Whether to sell master franchises
- Requirements for using suppliers and vendors
- The training and support you’ll provide franchisees
Put these professionals on your team to help:
An accountant can help you determine if you have the necessary capital to franchise, if franchising is financially viable, and what franchise fees and royalties to charge. (Being a franchisor is not cheap—startup costs, at minimum, will likely run in the hundreds of thousands of dollars.)
Franchising is highly regulated on both federal and state levels. An attorney can create a Franchise Disclosure Document (FDD) and help you register it with the Federal Trade Commission. The FDD includes detailed information about your franchise opportunity, such as audited financial statements, management experience, franchise costs and fees, the franchise contract and more. Several states also require registering your FDD with the state.
Franchisee training and support materials are key to a successful franchise system. (If franchisees fail, it hurts your brand image—and your profits.) A franchise developer can help you create training materials, operations manuals, company policies and more.
As a franchisor, you’ll need to market your business both to consumers and to prospective franchisees. A franchise broker (sometimes called a franchise consultant) can help with the latter. Brokers match franchisees with franchises and receive a commission from the franchisor. Franchise consultants do the same but are paid a flat fee by the prospective franchisee. Since strict rules govern franchise sales, working with a broker or consultant can help your franchise grow with less effort on your part.
For more information, visit:
- The International Franchise Association (IFA)
- The American Association of Franchisees and Dealers (AAFD)
- The Federal Trade Commission (FTC)’s guide to franchises, business opportunities and investments
Be sure to read this franchising advice from a serial entrepreneur.
- Should You Buy a Franchise? The Pros and Cons by Steve Strauss
About Rieva Lesonsky
Rieva Lesonsky is CEO and Co-founder of GrowBiz Media, a custom content and media company focusing on small business and entrepreneurship, and the blog SmallBizDaily.com. A nationally known speaker and authority on entrepreneurship, Rieva has been covering America’s entrepreneurs for more than 30 years. Before co-founding GrowBiz Media, Lesonsky was the long-time Editorial Director of Entrepreneur Magazine. Lesonsky has appeared on hundreds of radio shows and numerous local and national television programs, including the Today Show, Good Morning America, CNN, The Martha Stewart Show and Oprah.
Lesonsky regularly writes about small business for numerous websites and for corporations targeting entrepreneurs. Many organizations have recognized Lesonsky for her tireless devotion to helping entrepreneurs. She served on the Small Business Administration’s National Advisory Council for six years, was honored by the SBA as a Small Business Media Advocate and a Woman in Business Advocate, and received the prestigious Lou Campanelli award from SCORE. She is a long-time member of the Business Journalists Hall of Fame.
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