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If business is booming and you are considering scaling, franchising can be an appealing way to rapidly grow your business network without needing a significant upfront investment.
Franchising is the agreement between two independent parties that gives a person or group of people (the franchisee) the right to market and sell a product or service using the trademark and reputation of another business (the franchisor). When you think of franchising, some of the world’s largest franchises including KFC or McDonald’s will likely come to mind, and the benefits of it become clearer. Franchising allows for rapid expansion, increased revenue, greater brand recognition, and access to a new and larger share of the market – but how do you know if it is the right time to franchise your business?
If you believe your business is franchisable, work through these considerations first before taking the plunge.
What is the current state of your business?
The starting point of any major business decision should begin with a review of the current state of your existing business. Questions you should be asking include at what point are you in the business’s lifecycle (have you been open a few weeks or a few months)? Are your sales up, stagnant or down? What are your long-term goals and will franchising help you achieve them?
Generally, it is recommended businesses have at least one to three years of successful operation before turning to a franchise model. The right time to franchise is when sales are consistently up, not down – you want to be growing and building on success, not using franchising as a way to ‘save’ a dying business. It may be worth enlisting the help of someone with a logistics masters degree, or similar qualification, who can help you break down, analyse data and review other insights that may factor into your decision-making process.
Is your business systems-driven?
Franchising requires a replicable business model, meaning if you want to grow your business in this manner, having strong systems and processes should be at the heart of everything you do.
Proven systems are vital to the success of a franchise, as they provide new franchisees with the blueprints they need to begin day-to-day operations. Good systems can also improve efficiency, reduce errors, minimise waste, ensure a consistent and reliable customer experience across all franchise stores, maintain a consistent brand image in the market and improve support and training for employees.
It is important to document your processes before starting a franchise model, to ensure they are captured correctly and are, in fact, successfully reproducible. Great systems are the cornerstone of every successful franchise.
Do you have enough capital?
Franchising is a great way to reduce the financial burden that is generally associated with growing a business on your own, but it still requires some capital to kick things off.
The ‘typical’ cost associated with starting a franchise network ranges between $18,500 – $84,000. This includes an FDD Legal Fee Development (a document that serves as the legal underpinning of your new franchise system, including your franchise agreement between you and your franchisees), operations manual development, financial statement preparation, filing and registration, franchise development, marketing costs and any other sales-related expenses.
Costing out exactly what would be required to franchise your business is important to ensure you have the funds to cover all requirements, or to determine whether you may need to get a business loan.
What are your ultimate goals?
At the end of the day, your business goals must also be aligned to the outcomes of becoming a franchise system, if you are considering leaping into the fray. If you are looking for growth that expands the reach of your brand, then franchising is certainly a good consideration, however, it is important to understand that building a successful franchise model and securing the right franchisees can take time, in most cases years. If you can comfortably commit to a minimum five-year business plan, are willing to put in the hard yards, have the motivation and do not consider franchising as “an easy way to grow a business” – then starting your franchise network could be the way to go.