Is Your Business Franchisable? How to determine if franchising is the right decision for your operation.
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Ever Thought of Franchising?
If you own a successful business – perhaps with even more than one location already – you may have wondered if your operation was suitable for franchising. This arrangement holds that a prospective franchisee would pay a fee, and subsequently royalty payments, for the right to operate a business under your name, brand, and likeness. In exchange for acting as the franchisor, you must supply the franchisee with the means, training, and ongoing operational support to replicate your success. Considering your circumstances, does this sound like a possibility? If so, read on. There are specific roles and responsibilities at stake, both for you as the franchisor and prospective franchisees in your system.
"Franchise Your Business" by Mark Siebert is a book published by Entrepreneur Press, and considered one of the leading tomes on the subject. Essentially, it's a how-to guide that references a business growth strategy accomplished through franchising. Chapter three, which shares the same title as this blog post, gets to the heart of the matter as Siebert presents a checklist: whether your business is viable, marketable, cloneable (more on that later), and supportable.
Is Your Business Suitable for Franchising?
For a business concept to work in a franchise system, it must solve a problem, be scalable, successful, and in demand. To participate in franchising, a business needs to have a replicable process for the allocation and distribution of a product or service, as well as an established and proven business model. Also, any prospective franchisees in the system must be able to follow it like a roadmap to success.
To assess the viability of franchising your concept, consider the following: is it the product or service itself? The brand? The operations and systems in place? If a business owner is considering whether to franchise a particular concept, these answers should come naturally. The next consideration is scalability. Imagine for a moment that your business could be replicated in another area. Could you train others to duplicate your success? Could they maintain the consistent delivery of your product or service? If you employ vendors, could they accommodate expansion? Lastly, are you capable of implementing a training program that could ensure the consistency of your operation? Siebert reasons that the key to franchising development is the business' unique selling proposition (USP). Meaning you'll require a singular value proposition that elevates your brand into a specific niche market to achieve success.
Calculating the Financial Probabilities
Perhaps the most important consideration of all is the litmus test of ROI. Siebert lays out specific guidelines for running the numbers to determine the financial viability of franchising your business in the first place. There's a specific calculation he shares which holds that your adjusted cash flow, divided by the total cost of investment, determines the ROI factor. Again, another checklist is proffered, incorporating expenses, taxes, salaries, and fixed costs. Starting a business is one thing, turning it into a franchised operation is something entirely different. It requires patience, discipline, and yes – capital. Still, there are thousands of franchise concepts on the market today and even the biggest and most recognizable brands, such as McDonald's and Subway, all began at the same starting point.
If you do come to the conclusion that franchising your business is a viable opportunity, it's highly advisable to seek professional guidance from a licensed franchise attorney to help you navigate the process properly.