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Are You Ready to Franchise?

Questions 5-10

5. Do I have adequate resources?

Franchising is often a lower-cost means of expanding a business, but it's not a "no cost" means of expansion. Your costs as a franchisor will fall into four major categories:

  • legal costs (which can run $20,000 to $50,000 or more),
  • development costs (development of plans, brochures, operations manuals, etc., which can cost between $20,000 and $100,000, depending on the aggressiveness of your goals),
  • franchise marketing costs (for which you can budget $5,000 to $7,000 or more per franchise to be sold--you'll need at least six months of working capital here), and
  • personnel costs (which will vary widely, depending on the aggressiveness of your goals and the human resources you can leverage).

A moderately aggressive rollout can easily run $200,000 or more. Of course, you can implement a conservative growth strategy with significantly less investment. The low-end cost to "get in the game"--assuming you can leverage off existing human resources initially to sell and service franchisees--will be the costs of legal compliance, the development of an operations manual and some marketing money. Want to sell two or three franchises to people who are inquiring? It'll still probably cost you $40,000. And even with a conservative growth strategy, you need to answer the next question.

6. Do I have the "intestinal fortitude" to spend?

Just having the capital isn't enough. You have to be willing to spend it--ideally without losing much sleep over it.

The franchise sales process takes an average of 12 weeks from the time a prospect comes through the door to the time they sign the franchise agreement. After investing $50,000 to $100,000 to develop your franchise program, you still need to spend.

Assuming you hire a franchise salesperson, you can burn through another $30,000 in the first several months. Add to that two or three months of advertising without a franchise sale, and you may spend another $20,000 or more.

If you haven't sold a franchise and your first instinct is to spend more, you're in the right place. If your first instinct is to run and hide, bear in mind that this scenario may be exactly the one you are bargaining for.

7. Am I a Cowboy?

I firmly believe that entrepreneurs make the world go round. That said, some entrepreneurs change direction faster (and more frequently) than a cowboy draws his six-shooter.

Franchisees need a sense of direction--not several. So if you're the type of entrepreneur who likes to turn on a dime, you might find that your capricious nature may not be appreciated by your franchisees.

8. Am I a Dictator?

Personality can also play a big part in a franchise company's success. A number of highly autocratic leaders--including some of franchising's most renowned pioneers, have been successful. But the times have changed. Today's franchisees are looking for a more collaborative relationship that requires the franchisor to provide strong leadership to its franchisees.

This isn't to say that franchisors should abdicate their responsibility for brand maintenance. But it does mean you should truly listen to what your franchisees have to say and try to provide for open and frequent communication.

9. Are my eyes bigger than my stomach?

Starting a new business takes time. If you don't have the people on staff to do it, and you don't plan on hiring immediately, where are you going to find the time to properly implement a franchise program?

As a new franchisor, you'll have many demands on your time. And if you meet that demand by taking time away from your existing operations, you may find that you're "robbing Peter to pay Paul." And if the core business suffers--the cash flow that was supporting the franchise program dries up--both businesses may end up suffering.

10. Do I have the fire in the belly?

As you can see, there could easily be 100 questions, not just 10. But when it comes to gut-check time, I would recommend just one more. Do you have "the fire in the belly?"

To the neophyte, franchising sounds tremendously exciting. And, if you're successful, there's no business that affords the excitement and the growth which franchising does. But, as with any new business, franchising requires hard work, desire and dedication.

So ultimately, a big part of your success is about desire. Sure, you need more than desire to be successful. But without desire, you likely never get to the starting gate. As they say in the movies, "you gotta wanna."

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Mark Siebert is the CEO of the iFranchise Group, a franchise consulting firm that has worked with 98 of the nation's top 200 franchisors. He can be reached at 708-957-2300 or at info@ifranchise.net.
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