Thinking of franchising? Here are a few things to consider, as well as tips on how to make it happen.
Franchising your business could be a fantastic way to take your business model from a standalone operation to a regional or even national level. But this is no overnight conversion – there is a lot of thought, planning and preparation that must go into the decision to franchise. Franchising expert Kay Ainsley, managing director at MSA Worldwide, helps shed some light on the process.
IS MY COMPANY FIT FOR FRANCHISING?
Anyone can legally franchise a business. That said, not everyone should franchise. So how do you know if your business has what it takes? Start out by giving your company an honest-to-goodness eligibility assessment based on a few basic criteria.
You’ve been in business for a full year. While this isn’t mandatory, it gives a company experience through all cycles and seasonal trends. If spring is the busiest time and winter is slow, you’ll want to be able to tell a franchisee how to handle staffing and productivity gaps.
You’re profitable. Some people fall into the trap of thinking franchising will save the business, but if the parent company is not making money, in most cases the franchisee will not make any money either – especially after you take a royalty off the top. The franchisee should be able to make a good return on investment, and to do that, a solid foundation from a strong parent company is necessary.
You’ve got that something special. If you have a unique sales program, or a software program for managing the business, or anything that makes an outsider looking in say, “Hey, that looks like something I’d like to do,” then it makes sense to consider franchising. “Many companies get started because someone comes up to them and says, ‘How do I do this?’ or ‘Are you a franchise?’ That prompts a lot of people to become franchisors,” Ainsley says.
You have operating systems in place and documented. It’s important to have policies and procedures documented and available for reference and training purposes. Ainsley recommends putting your company’s operations manuals on an intranet so that they’re easy to update and access, and they’re searchable if you’re looking for an answer to a specific problem.
WEIGH THE PROS AND CONS
You may be asking yourself if it’s worth the hassle, preparation and maintenance to franchise your business. The truth is there are both benefits and risks to franchising.
One of the biggest benefits of franchising is the opportunity to rapidly expand your business and build brand awareness. It’s economical, too, because your franchisee is invested in the business, helping you move into new markets with limited risk. “The franchisee gives you money to get started, plus they give you an initial franchise fee, which should cover your cost of assisting them in getting the business going,” Ainsley says.
Another perk is that you can pool advertising and marketing money for all of your franchisees in your corporate locations to create more professional marketing programs, building your brand awareness even more.
On the flip side, the major risk is that you could select an unworthy candidate to run your franchise. If they don’t operate according to your standards, your brand could be tarnished. “Selecting the proper people to be your franchisee is one of the more critical decisions that you make in franchising,” Ainsley says.
Once you decide your standalone business is ready to evolve into a franchise, the first thing you should do is to contact a business consultancy firm and work with someone who can help develop the proper strategy to make sure standards are in place for the franchisee to operate your business, and make sure the contract is given the flexibility needed to manage and progress the system moving forward. Then, contact an attorney to draw up the legal documents.
“It’s important that your legal documents and your original business strategy are well thought you and not only cover the business as it is today, but allow you the avenues to evolve the business and maintain a competitive edge over time,” Ainsley says.
Once the documents are complete, start advertising for franchisees and get them trained. Training your franchisee is one of the most important steps in expanding your private business to a multi-location franchise. The franchisee, while an independent business owner, is also representing your brand. Therefore, a proper start-up manual and operations manual are necessary.
“The key things are having the proper strategy, and having good sound legal documents,” Ainsley says. “Skimping on legal documents to get started is not a good idea, because the franchise agreement will typically run 10, maybe 15 years […] and therefore you want to make sure that you’re well protected during that time." ?