Thinking About Franchising?
Are you trying to decide if expanding your business through franchising will work for you? Or if your business concept is even a candidate for franchising?
Then this article is for you.
There’s a simple reason franchising is the number one method of business expansion in the U. S.
Even large, company-owned chains are taking advantage of the franchise model, converting employee run locations to owner run franchises by selling to existing store managers.
With the same product, staff, décor, and pricing – but with an owner now running the store instead of an employee – sales, profits, and customer satisfaction almost always increase.
Opening company-owned locations and then converting them to franchises is actually the hard way to do it.
But companies like Starbucks and Sterling Optical have found that owner run franchises commonly outperform company-owned stores, making the conversions well worth the effort.
First Things First
Before we get into the advantages of expanding your business through franchising, have you got what it takes to be successful at franchising?
If your business model is unique and profitable, can be duplicated in other areas and you have credibility in your market, then your concept already has the must-haves and franchising can work for you.
More about each one:
Different sells. The more your offering stands out from the crowd, the easier it will be for you to sell franchises.
This can be a new/offbeat/quirky/fun/funky product or service, a clever marketing strategy, different target markets, the way you combine new or different ideas into one concept, even a unique way of pricing initial and ongoing franchise fees.
You don’t need all of these. The trick is to find a way to stand out.
Profit. It’s the number one reason people go into business for themselves.
The franchised business needs to produce enough of it (allowing for any continuing fees such as franchise and advertising fees) so that within about the first six months the franchisee can start taking out a salary.
By year two or sooner, there should be enough profit left over to start paying off the initial investment.
To successfully franchise, your business model should be documented, systemized and teachable, and able to adapt to work in different markets. You will be cloning the concept in various markets and locations, usually with some different layouts.
But don’t get too hung up on this right now.
A big part of our Franchise Development includes learning everything we can about your business and operations and then applying what we learn to create an in-depth Operating Manual your franchisees will use to run their business.
The manual will become the documentation and detail your systems and training. It can be updated as often as needed.
You gain credibility any number of ways.
Organization size, years in business, look of the prototype unit, publicity such as newspaper articles or videos, consumer awareness of the brand, strength of management, good public relations, and loyal customers.
By the way, an excellent sign that you are ready to franchise your business – and can be successful doing it - are customers asking if you are already a franchise, or if you have other locations.
There’s much more to creating an attractive, easy-to-sell, startup franchise opportunity than just having the must-haves above.
But if you have those covered, we can take care of the rest.
Speed, People, and Money
The advantages to you when expanding your business through franchising are easy to remember; they come down to speed, people, and money.
More about each one:
Expanding your business through franchising is much faster than opening company locations.
Your franchisees are managing the bulk of the process. They find the site, negotiate the lease, hire the contractor, oversee the buildout, hire and train the employees and so on.
All the things that you would typically do, or hire additional staff to do when expanding with company-owned locations.
You will also be building your brand much faster.
Because of how quickly franchised locations can be opened, public awareness of your brand will increase rapidly. And this tends to snowball. The more public awareness you create, the faster you sell franchises, and the faster the brand builds.
To fuel the brand building efforts, franchisees typically pay into an advertising and promotional fund that you control, giving you a much bigger war chest to use to advertise and promote the brand.
The size of the contribution and how the funds are used is up to you.
Franchisees represent the best, long-term management there is.
You won’t need to be involved in day-to-day operations or deal with the turnover associated with employee managed, company-owned locations.
Franchise owners, usually with their life savings invested, are highly motivated to make sure that the store or unit is kept clean, runs well, employees are operating up to system standards and the business makes a nice profit.
They also become part of the community and help promote the franchise and brand locally.
Franchisees use their capital to open the site, making the cost to you when opening a franchised location a fraction of what you would spend opening company locations.
You’ll take on much less risk as well.
Since you won’t be investing your capital, your risk of losing money is reduced significantly. The franchisee signs the lease and takes on the financing and assumes the liability of the store or location.
For the most part, you are using other people’s money to grow your business.
Your profit comes from the franchise and any area development fees, continuing royalties, and any products you sell directly to or arrange to have sold directly to the franchisees.
Hold on Loosely
“If I franchise, won’t I lose control?” It’s the number one question I get asked.
You do lose the absolute control of firing someone on the spot, which brings its own set of problems, but you’ll gain much more control in other ways.
There will be a binding contract (the Franchise Agreement) between you and your franchisees and a playbook they must follow (the Operating Manual). These legally enforceable rules and policies can be as strict as you want them to be, even to the point of micro-managing your franchisees.
Think of it this way; most franchisees have their life savings invested in the new business.
By not following the rules and policies or performing up to the standards you set, they don’t just risk losing a job - they risk losing their entire investment. That’s a pretty big stick.
So when is too much control too much control?
It may seem counterintuitive, but ruling with an iron fist can easily result in less control of your franchise system, not more.
The goal is to find the sweet spot between over-management, which will make your compliance life crazy and can easily backfire - including making it tough for you to sell franchises - and keeping more than enough protection and control of the franchise system and brand.
Like the song says...
“Just hold on loosely, but don't let go, if you cling too tightly, you're gonna lose control.” ~ 38 Special
Hold on loosely. We can show you how to do just that.
To learn more about the steps to franchise your business with links to other helpful articles, be sure to read; "If you Build It".
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If you would like to learn more about how we can help you franchise your business or just have a question looking for a straight answer, give me a call at 321.392.3000 Ext 1, or use the Contact Form to set up a call.