When you dreamt up your business, did you dare to envision that it would have a presence in every city across the country? Even if you’re more gently considering your route to growth, the franchising model can be an effective way to scale quickly.
However, it can be tough to set up, stay profitable, and keep standards high. Learn about the right time to franchise and how to find the best people to represent your brand.
How does the franchise model work?
The franchise is a commercial and legal agreement between your company (the franchisor) and an individual (the franchisee) who wants to use your company's trademark and business model and distribute the same goods and services. You charge a fee for the franchisee to use your brand and operations.
These fees are royalties that are paid throughout your relationship. They include rights to use your business model, and also your training, ongoing support, and operational instructions.
To make sure that they keep your standards as high as you set them, the franchisee will sign a contract to adhere to strict operational terms.
A customer will see a franchise as just another branch of your company, but under the agreement, the franchisee is taking on the risk and will either make money or lose money depending on how the branch performs. They are essentially buying a pre-established business and will be in charge of growing the business, attracting new talent, and leveraging the brand to bring in customers.
Is now the right time to franchise my business?
Franchise expert, Steven Beagelman, told Forbes, “First and foremost, spend some quality time digging into your own business. Ask yourself what your long-term goals are and define your vision for your brand. Where are you in your business’s life cycle?”
Do you have a brand that you can protect?
In order to attract the right franchisees, your brand needs to be relevant, well-loved, and protected by the USPTO. If there’s any uncertainty around your brand (someone else has your Instagram handle, your logo hasn’t been trademarked since it was updated, or there’s a brand in your field with a too-similar name) it’ll be much harder to put a franchise agreement in place.
Do you have a thriving customer-base?
Franchising is all about duplicating the systems, brand, know-how and business processes that have allowed you to make your business successful. The ideal time to grow through franchising is when things are going well. Does your brand translate well to another market in a different part of your state, or elsewhere in the country?
Are your suppliers ready to scale with you?
Your business won’t be replicable if you have small indie suppliers who won’t be able to manage fulfilling if your usual orders doubled or tripled overnight. Do you have a good relationship with them?
Do you have the time and money to invest in making it a success?
Although you can scale quickly and more expediently with a franchise model, a lot of work and money goes into setting yourself up for success. Can you attend franchise trade shows, networking events, hire the right lawyers, and take time to think through how someone else can replicate each small aspect of your operations?
Are your processes running smoothly?
You will have to be able to document everything, from how you handle deliveries, to your EPOS system, and even how you greet customers on the phone. If your system has any quirks, or if too much is left up to judgement, it will be less desirable and less transferable.
Are you ready to change your day-to-day role?
When you decide to franchise your business, you’re essentially taking on a new role. Instead of spending time with customers, you’ll be managing the market area and territory of your franchises., meaning more time on the road. It can be a really exciting time as you move from the micro to the macro, building relationships with your franchisee partners to expand and grow your brand in ways that you couldn’t achieve yourself, but it will significantly change the type of work you do.
Franchise Law Solutions breaks down some of these points in, “Is Your Business Franchisable and Should You Franchise?”
What’s the franchising process?
After your brand and operations are in order and are thoroughly explainable, you will come up with a franchise model that fits your business and a franchise disclosure document (FDD). This is a vital part of the process because the FDD tells prospective franchisees everything they need to know about the brand and gives them the information they need to decide if they’re going to put their money into the franchise. It addresses 23 points, including initial fees, restrictions on sourcing of products and services, financial statements, and patents, copyrights and proprietary information.
The franchise industry is heavily regulated, so it will be useful to have some professional support for creating a franchise disclosure document, including a specialist franchise attorney.
How can I find the right franchisee for my business?
If this is your first foray into franchising, you might have front-loaded a lot of money and resources to start the process and be keen to get things going. But the sales cycle can be long and it can be a challenge to know who will flourish under your brand.
It can be tempting to settle for one of the first applicants, but at a minimum, the person should meet the following criteria:
Aligns with your brand ideals and valuesYour luxury skincare brand won’t work under someone who uses three-in-one to wash their face, and your cool Szechuan take out spot shouldn’t be helmed by someone with no appreciation for Chinese culture. You need someone who inherently understands your reason for being and why your brand has an important place in the world.
Proven leadership skillsHiring the right staff and managing them day-to-day will be your franchisee’s most important role. How can you get a good sense of what they are like as a people manager?
Sufficient capital Lack of capital is the most common reason that franchises fail. Scrutinize your prospect’s liquid net worth, net worth and credit score and see whether they’ve truly thought through the cash flow needed to open and operate the business.
Entrepreneurial, (but not too much)You need someone with a lot of self-start energy, but not someone who is constantly trying to break the mould (you worked hard on that mould)
Sales and marketing experience Even though you’re handing the franchisee a guidebook for a successful business, they should still understand the tenets of best sales and marketing practices. You can’t code great communication skills into your instructions.
It’s important to evaluate your ‘franchisability’ factors and discuss openly with a franchise lawyer what is right for you and the future growth of your business. You’ll succeed in franchising with proper execution, developing the right business plan, and associating yourself with a team of trusted advisors who will help you enhance your business and brand.
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