Your business is growing, cash flow is good, and you know there’s opportunity for expansion. You may be thinking about franchising your business. You want to know if you’re ready and what stage your business needs to be at to franchise.
To be franchise ready you need to have the right numbers, founder mindset, and a scalable business. Below we discuss how to know if your business is ready to franchise:
1. The Numbers
When you start selling franchises the most pressing questions that franchisee candidates and franchise brokers will ask is “How much do you make? What are your sales? What is your cash flow and how much can a franchisee make?” In the franchise world answers to these questions are known as financial performance representations and the rule is that you cannot share this information unless it is disclosed in Item 19 of your Franchise Disclosure Document. So do you have the numbers to franchise your business? The answer is yes if:
Your business and current operations are representative of the type of business your franchisees will operate.
You’re profitable and even after accounting for lower sales and increased expenses that your franchisees will experience (including fees that will be paid to you as franchisor) your franchisees will be profitable and, potentially generate a good ROI on the investment they make in establishing a new franchised location.
2. Founder / Team Mindset
The same passion that you put into developing and growing your business is the same passion that you need to put into franchising. Can you envision yourself learning franchising, building a franchise organization, attending franchise development conferences, and building, over time, a franchise organization? If so, you’re on track to having the right mindset for franchise success. One more thing… you’ll also need a mindset focused on the long-term wins and a 5 year franchise success strategy.
Your business needs to be scalable. The systems, processes, and supply chain that you’ve built need to be capable of supporting franchisees and providing them with that extra edge that they’ll need to succeed. This all doesn’t need to be in place on day 1 but it needs to be there and, over time, needs to become a part of a system that you continuously improve for your franchisees.
Franchising is a process that involves continuous growth and improvement. Good franchise systems develop and improve over time. So while you may not have everything in perfect order on day 1, to be ready to franchise, at a fundamental and foundational level your business needs to have the right numbers, a founder with a franchise growth mindset, and business systems and operations that are scalable and capable of supporting multi-unit growth.