When to Franchise Your Business
Making the decision to franchise your business is very big and should not be taken lightly. A franchise is a business model that allows an owner to expand and sell the business model to other entrepreneurs, explained in more detail in our article: What is a Franchise. There are four basic steps to take as you begin to franchise, covered in our article: How to Franchise Your Business. The last piece of the puzzle for many potential franchisors is knowing when to embark on the franchising process. While there are many unique considerations for each owner and brand there are some general rules that apply to every business that wants to become a franchise.
The first question to ask in evaluating whether you are ready to franchise is: Do you have a process? An even more detailed question to ask: Do you have a process that is sustainable without you? These are the lynchpins of any business that seeks to franchise. Any potential franchise must have a well detailed and organized system that is replicate-able almost anywhere. This is one of the hardest hurdles for a business to overcome. Many business owners have made themselves indispensable to their own business. This often prevents them from taking any extended absence from the business, not a good model for a franchise. If you are the business owner who fears taking a vacation because your business will be in shambles when you return, franchising is not for you. Sometimes creating the process is beyond the skills or the time commitment of an owner, while I would always caution moving too far too fast, sometimes it can pay dividend to bring in a consultant or business operations manager to spearhead creating a sustainable system.
The next consideration is closely linked to the first: Are you prepared to run 2 companies? When you become a franchisor you will need to have the skill and time to run two companies, your original business and the newly formed franchisor. As the franchisor you will begin having to dedicate increasing amount of time to monitoring and helping your franchisees. From quality control to marketing to operations reviews you should not neglect your franchisees if you want a healthy company. If you have created a sustainable process as mentioned above the free time you have created will be put to use as an engaged franchisor.
One important question that could make or break your decision to franchise is: Do you have your IP protected? You will need to have your IP protected and organized for anything of value to be sold to your franchisees. Intellectual property must be in line before taking one step towards franchising.You may have a great concept but no brand or trademark to give your potential franchisees. The process of trademarking and organizing your IP can range from easy to overwhelming, I strongly recommend talking to an IP or business attorney to help you sort out any issues and get the trademarks registered, it can be a lengthy (4-6 months) process.
The last consideration is whether your profits are enough to attract potential franchisees. While your business may make you very comfortable and happy, are the profit margins great enough to attract people who probably only look at the bottom line? Depending on your industry you will want your profit margin to be very competitive to attract franchisees for your startup franchise. NYU has a great resource for looking at the margins of industries in general, HERE. You will need to do in depth research into your industry and the profit margins of your product or service. It will be expected that you beat the average profit margin for your industry consistently for investors to consider your franchise.
While franchising can be an exciting and lucrative endeavor for any entrepreneur it must be approached with a methodical and well planned process. For a free consultation on franchising your business call Reidel Law Firm today at (832)510-3292 or use the contact form below. Don’t forget to download our Guide to Franchising Your Business.