So, business is going well. You're established in your area, you've got regular customers, profits are growing year to year, and you're ready for something new. It's time to take a step forward and see just what your business is capable of.
A new venue makes sense: you've got the collateral, a proven concept, and a receptive audience ready to go. But given that your business model is tried-and-true, why change it? And so the idea of turning your brand into a franchise first comes into being.
A franchise is officially defined as the process of selling the rights to your brand and business to a third party, who will run outlets as independent arms of the brand. A franchise can be anything as large as McDonalds, to as small as a handful of local Italian restaurants under the same name.
So, is your business eligible to become a franchise? And what are the benefits of doing so?
According to The Franchise Institute, there are six main factors to consider when deciding whether the franchising route is right for you. They are:
- Owning an established brand.
- Having a proven track record.
- Being a niche business.
- Ensuring profitability.
- Ensuring longevity.
- Having the ability to be replicated in a number of locations.
Let's break that down.
Owning an established brand.
Having an established brand means being in the market for anywhere upwards of three years. This gives you time to move past beginner's luck, and really know how successful your brand is.
Maintaining profits and great customer relations in an established business is a great indicator that you're ready to franchise.
Having a proven track record.
Being able to prove a consistent and reliable business model is what is going to be your major sales advantage when looking to sell to franchisees.
Even if you are planning on overseeing your new franchises personally, you may eventually be looking to hand over the management to a third party.
They will want to see the facts and figures that show a legally and financially sound business from the start.
Being a niche business.
The basis of being a franchise is being popular enough to attract a customer base wherever you may choose to open. And being popular means being able to feel fresh and new, well after you open.
The best way to ensure this is by choosing a niche offering. Pitching into a condensed market - such as Mexican food, or American cuisine - means you might get lost.
Is your business different to others? Why? Will it still feel unique in several years time?
Profitability doesn't just mean maintaining your current income - it means being able to absorb the costs that come with setting up a new franchise...and still turning a profit.
Inside Franchise Business point out that the costs of setting up the franchise network alone are high.
"Understand that the costs to develop a workable franchise system are likely to range from $50,000 to $100,000 and attempting to achieve this more cheaply is a false economy," they write.
Also to be factored in are the increased costs in your marketing - as Tony Eames wrote for the SMH:
You have three marketing priorities: promoting the franchise brand, helping franchisees market their individual businesses – and marketing your franchise offer to potential franchisees.
That will cost significantly more than a single business.
Being able to quantify a long shelf life for your business is crucial to inviting third parties to invest in your brand. This will require forward planning, and looking at potential risks. Having a strategy prior to expanding will be your first step to longevity.
What's your game plan if the store doesn't float? What are your targets for the first 6 months? How will your network of investors and management staff be affected?
Franchise Business recommend drawing up these strategies with a lawyer before opening.
Appoint a law firm to write your disclosure agreements and franchise agreements. This may involve some major decisions as the agreements need to line up with what you are offering a franchisee.
Being prepared is what will ensure your new franchise doesn't go under.
Having the ability to be replicated in a number of locations.
Finding great success in your first business can give you a false sense of security in your brand's capacity to reach new crowds. Consider the demographic you are currently catering to: are they specific to your area only? Do they exist in other cities, other states? Is your concept culturally specific to your area?
A good franchise model could basically be replicated anywhere: rural or urban, high and low socioeconomic areas, student neighbourhoods and family-heavy suburbs. Take the time to consider who your customer is, and how commonly they exist outside of your current area.
If you have considered all the above points, and think you're ready to take the next step into becoming a franchise - congratulations! Exciting times ahead.