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If you are currently operating a successful business with a proven business model, you may have already begun thinking about ways to expand. Franchising allows business owners to grow their brands, enabling others to take on the daily operation and management of the new franchise units. Some businesses are more easily franchisable than others; one aspect is choosing the right time to franchise. This article will explain the factors contributing to whether your business is in a good position for you to franchise.
The Franchising Model
Franchising is a method of brand expansion. The business owner becomes the franchisor and allows other people (franchisees) to operate businesses using the franchised brand’s operating systems and intellectual property. It is an alternative to expansion methods such as company-owned expansion, where the parent company owns the new units. In franchising, the franchisor does not own the franchisee’s units but will receive royalties and fees from their franchisees.
The following sections consider essential factors that can determine the success of your brand’s expansion through franchising.
1. Market Demand for Franchise
Whether your business has proven success in its current market is a vital consideration before franchising. If you are not profiting from your business in its current state, it is unlikely that you will attract prospective franchisees.
If you can show that your business is successful within its current market, you need to then consider whether there is potential market demand elsewhere. Does a potential customer base exist in the location you are considering for the franchisee? How likely is the franchisee to be successful?
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2. Prospective Franchisees
Beyond market demand, you should also consider whether people would be interested in running franchises. Have people already been asking you whether they can run units of your business?
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Many entrepreneurs are interested in running a franchise as a franchise opportunity comes with a package including a proven business model, training, support, and pre-tested operating systems. Generally, franchises carry less risk than starting a business from scratch. Still, a prospective franchisee will want to know that their business has a good chance of success.
3. Capital at the Ready
While franchisees foot the significant initial bill to set up their units and buy their rights to operate, franchising still costs franchisors. The cost can vary depending on the type of business and the industry in which it operates.
Costs can include:
- investment in professional advice, such as legal, accounting, and business advice;
- development of franchising materials and training programs; and
- marketing and advertising costs.
Consider whether you are prepared to invest to begin your franchising journey. Investing, for example, in legal advice can benefit your franchise business and mitigate the risk of future legal disputes and the significant costs attached to them.
4. Replicability of Franchise
The franchising model relies on replicability. A replicable business model means that all franchise units will run similarly, using the same systems and processes. Think about your business and how it functions now; could somebody else run a business just like yours once you have given them a detailed manual and initial training program?
The franchise operations manual will also include information about aspects such as:
- the history of the brand;
- your roles and responsibilities and those of the franchisor; and
- employment-related procedures.
Beyond franchisability, a significant benefit of a replicable business model is a coherent consumer experience across all franchise units. Replicability can make your brand reliable and dependable for customers regardless of location.
Key Takeaways
The franchising model offers an excellent way for business owners to expand their brands. However, several factors determine whether you can franchise your business and whether it is the right time to do so. No franchise business is guaranteed to be successful. Still, business owners can set themselves up for the best chance of success by determining if franchising is right for them before deciding to franchise.
It might be an appropriate time to franchise your business if:
- you have a successfully operating business and can see potential market demand elsewhere;
- other people are interested in running a business just like yours;
- you have capital available to invest in setting up your franchise business; and
- your business model and systems are easily replicable.
If you would like legal advice about franchising your business, LegalVision’s experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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