Owning a successful business might make you think franchising is the logical next step. If your current operation is doing well, then you will do twice as well with another, right? Wrong. Just because you have a great concept, are attracting customers and making money doesn’t automatically mean your business will succeed as a franchise.
So, how do you know if your business is franchisable? First, consider your operation. Is it profitable? If so, great – you have met the first criteria. But do you have a proven business model? Most businesses need at least six months to one year to determine viability and whether another person (the franchisee) can successfully operate the business in a new market.
Next, make sure you have good management in place. If you have never operated a thriving business, it may be worthwhile to hire someone with previous franchise experience. Of course, you will need to hire consultants and a franchise attorney, but these advisors will not be there on a day-to-day basis to help you manage the franchise and the business. A franchise director can work with you to help you through the process of becoming a successful franchisor.
Third, it is vital that you have at least $75,000 to $150,000 in capital to invest in the franchise program. This expense will cover hiring a franchise attorney, an accounting firm and a franchise consulting company, among other things. These entities are necessary for creating a Franchise Disclosure Document (FDD), an audited financial statement for inclusion in the FDD and designing an operations manual for your franchise, respectively. If you do not have the money, you should not be considering franchising.
These criteria are important to take into consideration prior to franchising your business. If you cannot meet all three criteria at this time, stay focused on your business and its’ continued growth and re-evaluate your franchise strategy in six to 12 months.