Why You Shouldn’t Franchise Your Business?
Frequently we talk about how to franchise your business, should you franchise, and the cost to franchise but, not enough attention is given to why you shouldn’t franchise. So, let’s discuss 3 reasons why you shouldn’t franchise your business.
Reason #1 – You Don’t Have the Time To Devote to Building a Franchise System
No matter who you work with and how good they are ultimately, franchise success requires time and commitment from you and your team. Sure, it’s critical that you rely on an experienced team of lawyers and developers to help lead the way but, ultimately, success must come from within. You need to have the time to learn franchising and commit yourself to learning best practices for selling franchises and building a franchise organization over the next 1, 2, 3, 4, and 5 years. If you don’t have he time to commit, don’t franchise.
Reason #2 – You Don’t Have the Capital for Long-Term Success
Ok, so you have enough money to franchise your business. You pay your franchise lawyer and development team to develop your franchise offering – your FDD, operations manual, financial performance representations, and projections – now what? Well what comes next is franchise sales and the reality is that you’r going to need capital to market the sale of franchises. There’s more costs and while the good news is that you can slowly scale your franchise system, you nevertheless need to understand the capital requirements and path ahead. If you’re not prepared to invest long-term, then don’t franchise.
Reason #3 – Your Unit Level Economics are Not There Yet
Long term franchise sales growth is based on franchisee validation and unit level economics. Once you sell your initial round of franchises – say your first 10 franchises – continued growth will depend on the satisfaction of your existing franchisees that, in large measure, will depend on their profitability. The unit level economics of your business must be scalable and sufficient so that franchisees will generate sufficient profits and return on their franchise investment. When evaluating unit level economics, consider that franchisees will have higher expenses, including royalties that they will be paying to you. If your unit level economics are not scalable to support your franchisees, then don’t franchise.
If you franchise the right way and focus on building an efficient franchise organization, long-term franchisees should be receiving more value from your franchise system than the on-going royalties they will pay to you. So, getting back to Reason #2 over time you will need to keep reinvesting your capital into your franchise system to create value and economies of scale.
Should You Franchise?
You can do it! But don’t ignore these 3 reasons as to why you shouldn’t franchise. If you would like to learn more and discuss how we can assist in franchising your business or, talk you out of it, give our team a call at (800) 976-4904, by email, or use our live chat.
By Charles Internicola November 16, 2020
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