Is Your Business A Good Fit to Grow via Franchising?
Franchising can be an optimal method for business expansion. It allows a business to share in the costs of expansion with franchisees. Because the franchisee will be required to produce most of the capital to open a new location, they become highly motivated to succeed, which is beneficial to both parties. In most cases, franchising allows businesses to grow much faster than they could on their own.
Although franchising provides a great expansion opportunity, it does take a great deal of upfront work and investment. Before venturing down this path, it is best to evaluate if your business would thrive in this model. If you are considering franchising your business, below are three indicators that your business would make a good fit to grow via franchising.
Franchising models are usually not appropriate for start-ups. Experts usually recommend turning a consistent profit for 2-3 years before considering expansion via this route. When starting your business, franchising is a future growth strategy to keep in the back of your mind. However, before you reach that stage, you need to prove the viability of your business concept.
However, mere profitability is not enough. In order to attract franchisees, you will need to demonstrate a modest to high return on investment. Potential franchisees are going to evaluate whether or not there is a high likelihood they will be rewarded generously for their investment and hard work. The profitability must be high enough to sustain the franchise-associated fees that will be charged, with plenty left over for the franchisee.
Further, your established profitability will ensure you have the existing funds or can access the additional capital that will be required. While one of the advantages to franchising is sharing the cost of expansion, you will still need financial capital to develop the franchise model. These development costs include drafting legal documents, developing the operations and systems manuals, and developing the financial model, business plans for the franchise and franchisees, a pitch deck to solicit interest from potential franchisees, training programs, and marketing assets. Creating these documents correctly will require a significant investment of time and money.
A quick search will reveal thousands of franchises available for purchase. In order to stand out, your business concept needs to be well-developed and exciting. Franchising is best suited to companies that offer a unique product or service. Common products and services can also be successful as a franchise if there is a distinct point of differentiation from competitors.
In addition, your brand doesn’t need to be well-known (yet – that’s why you’re franchising), but it should be consistent, clear and distinguishable. The brand should generate some “buzz” and exude a sense of originality.
Lastly, you need to have replicable systems. There’s a good chance that part of the reason your business is highly profitable is because it has effective and efficient operations that allow you to run like a well-oiled machine. Are these systems and methods something that can be easily documented and taught to franchisees? Would this information be able to be mastered by franchisees within a few weeks or months? You want systems that are so refined they can be easily explained. Training that takes any longer than the timeframe mentioned would be taking away from the time you and your franchisees have to prepare and launch new locations. Lengthy trainings carry both high financial and opportunity costs.
If your business meets all the criteria above, you may be a good fit to expand via franchising! When you are ready to make this leap, Joorney has you covered. Whether you require a business plan for additional financing to develop your franchise or you’re ready to create your masterplan, our experts are ready to assist you. In addition, our Advisory team offers premium market research to help you evaluate potential new locations.