Next Big Thing?

Franchising can take your business far and wide.
Magazine Contributor
Franchise Consultant for Start-Up and Established Franchisors
3 min read

This story appears in the January 2007 issue of Entrepreneur. Subscribe »

Thousands of entrepreneurs have chosen franchising as an ideal way to expand. Who can blame them? The vision of having your business's name spread across the nation--maybe in every city, or even on every corner--has lured many a successful entrepreneur to the land of franchising. And the benefits don't end there. Since your franchisees are responsible for the investment of each operating unit, they basically bear the cost of expansion. Also, franchisees are highly motivated--much more than employees--because they're investing their own capital in the business.

So you think you're ready to enter the world of franchising? Here are a few tips.

1. Make sure your business is "franchisable." The first issue you need to address is whether your business is salable as a franchise. Ask yourself: Have I received legitimate inquiries? Is the business model unique? Do I have a point of differentiation? The business must also be replicable. That means it can't rely too highly on your personal involvement. Finally, and most important, it needs to offer a potential financial return that will allow a franchisee to generate an adequate return even after paying you a royalty. If you aren't comfortable addressing these questions, speak to a franchise consultant about whether your business has what it takes.

2. Develop a strategy. Success in franchising, as in any business, doesn't happen by accident. Your goals and resources dictate your strategy and the structure of the franchise offering. Key areas to address: position the opportunity against competing opportunities, decide what type of franchises to offer (startup, area development, etc.), provide services to franchisees and hire staff to provide those services. Other considerations include fees, royalties and other revenue sources. If you make these decisions without adequate forethought, the franchise may be doomed from the beginning.

3. Take control. Large-scale franchise success is all about delivering a consistent consumer experience. To do that, you need to be sure your systems are in place. That generally means compiling comprehensive operations manuals, training programs and maybe even training videos. But be careful: While the contents of these materials can help shield you from liability, if poorly crafted, they can actually create liability.

4. Get legal. To franchise, you need to develop the appropriate legal documents. In the U.S., those include your franchise agreement, Uniform Franchise Offering Circular and, depending on where you'll be selling franchises, registration of your franchise offering with state agencies. Don't take shortcuts here. Hire an attorney who specializes exclusively in franchising.

5. Sell it. Franchise sales start with lead generation. As a new franchisor, you should budget for a minimum of $5,000 to $7,000 per franchise sale on media alone. You'll also need first-class marketing materials, such as brochures, videos, a website, etc., to support your franchise sales efforts. But keep in mind one of the most important rules in franchising: Be selective in the franchise sales process. If you aren't confident a prospect will succeed, take a pass.

6. Make them succeed. In franchising, success begets success. If your franchisees are wildly successful, you'll find that your franchises practically sell themselves. But if your franchisees fail, no amount of marketing or sales efforts will rescue your system. So be sure you do everything in your power to make your franchisees successful.

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