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5 Things to Consider Before Franchising

Feb 2, 2018

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Posted In : Franchising

You started a business a couple of years ago and now business is all of the sudden booming. Everything is going better than planned and you want to keep the momentum going, so your first thought is, “Should I start franchising?”. Franchising can be a great step for a lot of businesses that can create an opportunity for them to grow and prosper even more. Yet, even though the extra profit and growing your business sounds very appealing there are a few things to consider before you make that big step.

The mistake that most people make when franchising is they try to jump into it too early. Even if your business is doing well and your profits are higher than expected, that doesn’t automatically make your business ready to franchise. The worst thing that can happen is you franchise your business too early and the high upfront costs of franchising are too much for your business to handle, and it causes the whole business to go under.

Before you should let someone else invest their money and time into your business, you want to make sure that you are ready to really help them succeed. Franchising is never a one-sided relationship, and it will work the smoothest when the franchisor and franchisee are on the same page.

The five aspects of your business that you want to analyze and digest to see if you have a “franchise worthy” business are:

  • Your Team. If you are trying to run a one-man show and do everything yourself, then there is no way you are going to have the time to invest in franchising. You need a good strong team of managers that you can rely on running the business when you are not there. Once the first franchise is opened, you or a team member will need to train the new management which will take you away from your own store. Having a strong team to back you up and help you through the process can make or break your success.  
  • Financials. Franchising can be a lucrative move if done correctly. It can also be a devastating move if you do not. Franchising your business has a lot of upfront costs that you will have to invest in the process. Per Entrepreneur, the average costs to start franchising your business is $250,000. This is why it is important to check your financials and see if you and your business have the money to invest in franchising.
  • Quality Control. Using other people’s money to grow your own business and make you money always sounds ideal until you run into a franchisee that has their own ideas for their store. When you start a business and it becomes successful you gain pride in what you started, and how your business is run. The problem that occasionally occurs when franchising is that the franchisor does not have standards or quality controls established for the franchisees to adhere. You need to create policies and a handbook that go over exactly how the franchise is run. This way you can ensure your business’s name isn’t tainted by a franchisee not representing the business well.
  • How Much to Charge? An essential thing you need to do when contemplating franchising is to see how much money the business will be able to make, so you can see if it will be worth it for your business. A part of doing this is to decide how much you want to charge for startup costs and royalty fees. The advice I would give is to research similar businesses to yours and get a ballpark range of how much their startup costs are. Once you have that you can see what price will work the best for your business.
  • Legal Advice.  One of the main reasons startup businesses fail is that they never seek out advice from a legal team. The same is true for starting a franchise. If you already have a lawyer or legal team then good chances are they will be able to assist you. Even if you do have a lawyer, if they do not specialize in franchising laws then you might want to consider hiring another one. If you do not have a lawyer than the best route to go is to hire someone who specializes in franchising laws. This is so important because you always want to protect yourself in business to make sure you don’t cause your business to fail due to ignorance of the laws.



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