5 Ways to Know If Your Business Is Ready to Franchise
Think you're ready to become the leader of a brand? Proceed very, very carefully.
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Joe Entrepreneur always believed in his idea for a frozen yogurt parlor, but in 2011 he actually quit his job, put his family's savings on the line and opened Joe's Fro-Yo. Three years of hard work, late nights and seven-day workweeks taught Joe a lot about running a startup, but the investment paid off. Today, business is booming, and last year Joe opened a second store. Lately, he and his wife have been talking more and more about whether it's time to take the leap into franchising.
Related: How Do I Start a Franchise?
They know that starting a franchise involves risk, but so did creating the first Joe's Fro-Yo, and look how well that turned out. It's hard to put away the idea of franchising -- there is so much money to be made! They'd be crazy not to take a profitable business to the next level and make Joe's Fro-Yo a national name … right?
Not necessarily. If running a lucrative startup is the equivalent to crossing an uncharted ocean and finding Treasure Island, then turning that business into a successful franchise is the equivalent to launching a rocket into deep space and landing on Jupiter. It's possible, but with limited supplies and no sure bets, entrepreneurs have to understand and accept the serious risks, enlist the help of experts and prepare for a long-haul journey. Here are five questions they should be asking themselves along the way.
1. Can you clearly articulate what your brand is?
Initiating a franchise requires a lot more than a great business concept. Entrepreneurs should understand exactly what their brand is and does, and articulate the concept and plan. Franchises are about systemization, so entrepreneurs need solid, organized outlines for operations, communications and methods for franchisees to attract new customers. Entrepreneurs must clearly and succinctly describe every facet of branding and operations to everyone, from investors to potential franchisees.
2. Can my business be replicated?
Joe is involved with parent organizations, his church and school sports teams, and both of his stores are within walking distance of two major high schools. Before Joe jumps into franchising, he has to examine whether his company could be a homerun anywhere. It's easy for entrepreneurs to underestimate how much value they personally add to the business, but for a company to translate into a thriving franchise, it has to be able to survive the day-to-day challenges and do so without the entrepreneur's personal touch.
Related: Franchise Your Business in 7 Steps
3. Am I willing to team up with multiple experts?
Joe is a fantastic salesperson and balanced business owner with plenty of skills, but a franchisor has to delegate. Building a cohesive brand means keeping every franchisee on the same page, with unified business systems; and no one person can do that alone. Joe's Fro-Yo will need experts who specialize in a range of industries, including public relations, advertising, graphic design, equipment and support, training and legal issues. Joe has to partner with the right players and empower others to take on tasks, while managing the process alongside a core corporate leadership team.
4. What's the true cost of franchising?
Before he even thinks about getting started, Joe needs two things: a lot of money and the willingness to lose it all. Entrepreneurs should expect to have investing partners as well as a personal financial stake in the venture. Costs will quickly multiply for brand development, courting potential franchisees, compensating experts and especially covering legal fees. (Never ever underestimate the legal fees.)
Franchises can't get off the ground without abundant cash flow, and if the franchise flops, it could all vanish. People often look too hard at the potential earnings without considering the potential loss.
5. Is my vision for expansion realistic?
Big dreams are the foundation of every triumph story, but they can sometimes cause financial ruin. In order to franchise, entrepreneurs have to be visionaries who believe in their product, but they also need to seriously examine whether their vision is possible in the real world. Franchising requires commitments on every imaginable level over the long haul. Before Joe takes the plunge, he should gear up for years of preparation, implementation and late hours. In the end, he may prefer to embrace his local success rather than become the leader of a huge brand.
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