6 Questions To Ask Before Franchising Your Business

Do you have a small business that is profitable and growing steadily?  Are you getting asked by out of town customers when you are going to open in their area?  Are you becoming bored with running one successful operating location and want the excitement of your startup days again? 

 

If you answer yes to any of these questions, you may want to look at franchising your business.  This is not a decision to be taken lightly.  It is best that you ask yourself 6 questions to determine if you are in a position to franchise.

 

Do You Have The Standardised Systems Needed?

 

If you want to franchise your business, you need to have operational systems and processes that can be standardised.  This will provide a consistent service or product to your customers regardless of the store location.  Standardisation is also needed to make training new franchisees and their employees easier. 

 

An example of this is an ice cream shop owner needs to have a written system detailing the steps to take when servicing customers.  This will include how and when to wash the ice cream scoop and whether gloves should be put on first.  The amount of ice cream and toppings will also need to be detailed.

 

This might seem like a small detail, but it could make or break your franchise’s success.  If the different franchises service ice cream differently, you can run into a number of problems.  Your products will not be consistent and this will negatively impact your brand reputation.  You may have one location that gives too much ice cream while another gives too little.  Franchises that are not consistent will bring less profit.

 

Before you consider franchising your business, you need to ensure you have an employee handbook.  You also need to have an operations manual that is consistently used.

 

Does Your Business Rely On Your Presence?

 

A lot of service businesses face this challenge, particularly those that started as a one-person company.  In these cases, it can be impossible to franchise because there is only one of you. 

 

If you have this problem, you can overcome it to franchise your business.  You will need to train employees to provide the same service you do which is where the operations manual comes in.  You should then start to ease your customers to your employees and away from you.  A good way to do this is to charge more when you provide personal services and less when the customer works with one of your employees.  You can also have all new customers handled by your trained employees while you keep serving the regular customers.

 

Are You Ready To Follow The Rules And Regulations Of Franchising?

 

There is a lot of red tape with franchising and it is regulated on different levels.  The basic regulation is that you have to provide any prospective franchisee with a Franchise Disclosure Document before they buy the franchise.  This is a legal document that can be hundreds of pages long.  It will provide detailed information about what the franchise has to offer.  These offerings include:

 

1. The initial and ongoing costs

 

2. The background of the franchisor and key employees

 

3. Three years’ worth of financial statements

 

4. Any litigation the franchisor is or has been involved in

 

5. The obligations of the franchisor such as training and advertising support

 

6. List of current and former franchisees and their locations

 

7. How the franchise is renewed

 

8. How the franchise is terminated

 

9. How disputes are resolved

 

Getting all this information and creating the FDD document will take a lot of time.  You will also need to hire a lawyer to help you.  If you do not have the time or finances to meet the legal requirements for franchising, this is not the time to go forward.

 

Is There A Market Outside Your Location?

 

A business that works in your local area may not work in another part of the country where people may not be familiar with the concept.  An example of this will be trying to sell Hawaiian shaved ice in the Scottish Highlands.  Many concepts that are found across the country took time to catch on and move.

 

Before you try to franchise your business, you need to research the markets and consider:

 

  • Are people in other areas familiar with what you are selling or will you need to introduce this?

 

  • Can you find your target customers in other areas of the country?

 

  • Are there potential franchisees in the areas you are considering moving into?

 

If you have a business that requires whitet-collar management experience, rural areas may not have the franchisees you are looking for. 

 

Is The Business Financially Successful?

 

Having a single profitable location is a good start.  Before you start franchising, you should have at least three successful locations in your area.  The process of opening and managing multiple locations will give you an idea of what to expect with franchises.  You can also learn how to help your franchises succeed. 

 

Finance experts at Max Funding say, ”starting these additional locations can cost hundreds of thousands. They suggest, “if you are unable to finance them within the business, you should look at a business loan to give you an insight into whether your franchising dream should become a reality.”

 

Do Your Like Management?

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There are many people who find the hands-on aspects of their business to be the best and what keeps them getting up each day.  If you are one of these people, you are in for a shock with franchises.  You will no longer be responsible for the daily operations of one of your locations.  You will be the corporate manager and handle tasks such as:

 

  • Creating marketing plans for franchises

 

  • Look for new regions to expand

 

  • Meet potential franchisees

 

  • Train new franchisees

 

If the idea of these management tasks fills you with dread, you will need to hire or promote a manager to handle everything for you.