Is franchising your business model the key to unlocking more revenue for your company?
It certainly can be a profitable growth strategy — if you are ready for it.
“The obvious benefit is you accelerate the pace you can expand your brand and you are not taking as much risk as the franchisees are at this point,” says George Ray, a consultant at Florida SBDC at FIU, the small business development center within the university’s College of Business.
But many businesses rush into franchising in the early years of their business, and it’s too soon.
“Every business owner considering establishing a franchise needs to consider if they are really ready to do that. Franchising your business means giving someone the right to operate under your brand. It’s your reputation at stake. In the wrong hands, it could really harm you,” said Ray, a specialist in franchising.
“Companies may be very good at marketing and packaging their concept and some people will buy, but you have to be careful. Maintaining scope and control over your brand is very important, especially earlier on,” he added.
Before launching into franchising, Ray believes businesses seeking to franchise should be established for at least five years, profitable, growing and have at least three successful locations running, with one or two of them in different markets. “People want to buy into a business that is proven to be profitable,” he said.
The process of opening and running multiple locations will give a business owner a good idea of what’s involved in opening franchises and helping them succeed. In addition, a company that already has made a strong name for itself in the markets it is serving will be more enticing to franchisee prospects, Ray said.
And there’s more: You’ll need a detailed training manual and standardized service delivery processes, such as processes for portion control and standardized taste if you are selling food.
However, it’s never too soon to get your business ready for franchising. SBDC at FIU is offering a free seminar on franchising this week – read more at the end of this post.
On Growbiz, we have covered the pros and cons for franchisees, but not for the franchisor business. Here are a few best practices you will need to master to ready your business for franchising:
Have standardized systems and processes in place – and documented.
To franchise a business, you need operational systems and processes that can be standardized to provide a consistent product or service by all franchisees. This includes procedures for customer service, making or serving the product to customers, cleanliness and safety.
Following these procedures is not only for consistency — your brand’s reputation is at stake, after all – but also legal liability, Ray said. You should already have an employee handbook and an operations manual and use them consistently.
Get familiar with the requirements of the FDD.
Franchising is laden with state and federal regulations, starting with preparing your FDD, or Franchise Disclosure Document, a time-consuming process. Your FDD, which franchise prospects will see, is required to provide detailed information about many aspects of your franchise offering, including initial and ongoing costs, litigation if any, background of the franchisor, list of current and former franchise locations, financial statements, your obligations such as training and marketing support and how franchise renewal, termination, transfer and dispute resolution will be handled. Here is a list of items required in the FDD.
Always be researching.
Business concepts that work in one city or state don’t always easily translate to other parts of the country – Pollo Tropical had trouble with this as it began expanding around the country. Before you try to franchise, do your homework to learn if what your selling will go over in other areas of the country, or if you will you need to educate consumers (and potential franchisees) about your concept. You will want to know if there there a good supply of your target customer base as well as potential franchisees in areas of the country you are considering.
Make sure your business is financially successful (and well-documented) and you have the capital to take on franchising.
Ray says it is best to have at least three successful locations up and running profitably – and at least one or two in different markets — before you take steps to franchise a business. You will also need the capital for legal help, marketing and selling to prospects and providing training and ongoing support to franchisees, and may need to apply for a loan.
“Accurate and detailed financial books really does help add value to whatever price you are asking for a franchise,” said Ray.
“Overall, I can’t emphasize the enough being as detailed and organized as possible with your financials, your training manuals, all your paperwork.”
Still think franchising is for you? You can get more information from the International Franchise Association and the FTC website.
And on Oct. 30, 2019, SBDC at FIU is offering a free workshop on franchising. Here are the details:
Franchising: What You Need to Know
When: Wednesday, October 30, 10:00am to 12:00pm
Where: Doral Government Center, 8401 NW 53rd Terrace, Doral, FL 33166
Are you a small business owner looking to franchise? Are you an entrepreneur interested to purchase a franchise? This dynamic workshop will give you key business and legal insights to make an informed decision on franchising. George Ray, a certified business consultant at Florida SBDC at FIU and Senan Garcia, an attorney with SG Law, will lead the workshop sessions.
In particular, the workshop will cover:
- Outline franchising options
- Pro’s & Con’s of franchising
- How to evaluate franchise opportunities
- Preparing a business to be franchised
REGISTER HERE FOR FRANCHISING SEMINAR.
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READ MORE ON GROWBIZ: Who is franchising out there and how are they doing? A new survey sheds some light.