When is the Right Time to Franchise Your Business?
Is now the right time to franchise your business? Is it a year from now? Or is it never?
Your business is growing and you see an opportunity for multi-unit expansion. You may be evaluating franchising. But when is the right time to franchise? Consider this 3 part framework to decide if franchising is right for you:
- Your Business’ Track Record
- Founder Goals
1. Your Business’ Track Record
One of the most important places to start is evaluating the performance of your business now. How long has your business been open? Are your systems in place? Are your unit level economics strong? Have differentiated your business from your competitors?
If you’re considering franchising, some positive signs are that your sales are growing, there’s good profitability, and people may be asking if they can buy a franchise from you. When you have prospective franchisees, they’re going to ask you how much money they can make, how much money your corporate locations make, and what they can expect from earnings. In the franchise world, the only way you can disclose this information is through your FDD Item 19 Financial Performance Representations.
Of course, when franchisees first open their doors, they aren’t going to be as profitable as you right away and they are also going to incur additional costs such as a franchise fee and ongoing royalty payments. So, when considering your track record, ask yourself how are your unit level economics now and will your franchisees be profitable even if they operate at lower sales and higher expenses.
There are always exceptions to the rules. It’s rare that we’d recommend business owners with less than a 1 or 2 year track record to franchise. However, there are instances where people have successfully franchised their business, grow their system in new industries where it was important to take that first mover advantage.
If you’re in an industry that’s very competitive, then when factoring in timing, being well capitalized is important as well as working with the right team. Going back to numbers, your financials should be at least consistent with industry benchmarks, if not superior.
Finally, you should have clearly defined key differentiators and an understanding about why your brand is unique.
3. Founder Goals
If you have a successful business and want to leverage the franchise model to grow into multi-unit development and expand the reach of your brand, you may be ready to franchise. Keep in mind that you’ll be transitioning from business operator to founder of a franchise organization. You’ll be building a leadership team and training franchisees. Watch the video below to learn more about how to align your goals.
The good thing about franchising is that it’s scalable and you should be focusing on a 5 Year Growth Strategy. You’re not going to franchise in year 1 and get 100 franchisees right away. It’s a slow buildup. So, this may be a good time to start since you need at least 5 years to ramp up sales.
Not ready to franchise yet? Take the next year or two to position your brand so when you do decide the time is right, you’ll have an advantage. Final tip, register and protect your trademarks with the USPTO! Sometimes if you wait too long, you may have to rebrand and you won’t want to wait until you begin the franchising process.
To learn more about franchising your business, the documents involved and how we can help. Contact us at (718) 979-8688, live chat, or contact us. Learn more about our fixed fee Franchise Launch Program that combines legal representation + franchise development know-how to help you franchise the right way.
By Charles Internicola May 26, 2021
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