Franchising is an attractive option for many business owners because of the wide array of benefits that it offers them. From earning royalties by selling a franchise unit to gaining a wider foothold in the industry you’re in, franchising is certainly worth looking into. Especially if your business is doing well, has steady ROI and profit margins and is scalable.
But at what stage do you convert your business into a franchise? To answer this question, it’s important to look at what a franchise company is and its overall structure to see if this is the right option for you.
What is a franchise company?
Franchising is just one area of the business spectrum and, in general, the meaning of franchise in business is taking an existing, successful business and replicating this success with smaller units that provide the same products or services in different territories around your region, country and even the world. If you’re thinking of McDonald’s, then you’re on the right track.
What is a franchisor?
Before we look at what a franchisor is, it’s important to also understand the franchisor-franchisee relationship. Since a franchise business is a replication of an existing business into other units that provide the same products or services, the franchise business is governed by a franchisor-franchisee relationship.
The franchisor is the original business owner who has decided to undertake this business expansion project through replication into different territories.
The franchisee, on the other hand, is the person who purchases this business unit and runs it. While there are a number of rules to follow by the franchisee in ensuring high quality service standards, consistency with the use of the brand and more, the franchisee is basically running their own business with a minor difference to other business owners who are not franchisors.
That difference is that they pay royalties for the right to sell the product or service and they also operate under the umbrella of the franchisor and all its associated requirements and responsibilities.
How to create a franchise
If you’re thinking about creating a franchise from an existing business you already own and run, and you’re wondering if now is the right time to do this, there are a couple of questions that you need to ask yourself.
1. Is your business successful?
An existing business needs to be successful before it can be franchised. It simply makes sense that you’re offering potential franchisees a viable solution for them to invest in. But how is success measured?
A few examples of business success include established and successful processes and systems in place, some of which can be automated, to ensure that products or services are provided to high quality standards.
Another important element is the brand name. Is it well known throughout the industry? Do you have regular customers? Is demand for your products or services high and you’re struggling to cope with it?
As for staffing, do you have the right staff in place – whether in entry-level or management positions – to run the business without much of your input? Is your business consistently profitable? The answers to these questions should help guide you to the first step in the process towards franchising.
2. Is it scalable?
Next up is scalability. Scalability roughly refers to the ability to take your business model, replicate it in another territory and see similar levels of growth, results and success.
Scalability is not possible for every business. However, there are many that can be copied and scaled and you need to see if your business is a good franchising fit.
Some examples of scalable businesses that have become successful franchises include home services and maintenance businesses, fitness and health, food, restaurants and coffee shops, courier and delivery services, transportation, education and more.
Meanwhile, examples of those that may not be a good fit include some manufacturing business types, some fintech services, etc.
3. Can your business idea be replicated?
Replication of your business success is vital for franchising your business. Replication means taking the original business idea and implementing it in another location. It’s a type of copy-paste model that needs to be feasible wherever you take it.
If your business is seasonal, for example, you may find it a bit more difficult to replicate than one that has consistent demand throughout the year. You may also want to consider aspects such as the ability and willingness to share your recipe for success with others.
This may include giving others access to your technology, processes, systems and know-how. If you’re ready for this, then you might just be ready to franchise your business.
4. Where does your ROI stand?
One of the first questions that a potential franchisee will ask you is whether your business is profitable and what types of ROI they can expect.
They’ll also want to know how quickly they’ll be able to make back in terms of their initial investment as well as the royalties that they will be paying you for using your business model and all the rights and licenses that fall under it.
5. Is franchising your business affordable?
Finally, when it comes to franchise development, you will need to consider the costs. There are licensing and registration fees and importantly, legal fees. The latter should not be underestimated as these can really pile up high rather quickly.
You may also need to engage the services of franchise development consultants and those of a franchise marketing agency to help you recruit the right franchisees and get the name of the brand more exposed in the industry.
This is likely to help get you even more exposure and customers and this is a great way of ensuring your franchise growth and franchise business development.
Alternatively, you can always browse through Franchise Fame’s franchise directory to see how others have done it and why they’ve been successful.
Finally, you always have the option of speaking to franchise consultants who are specifically geared towards helping you turn your business into a successful franchise.
They’ll take into account all the factors that make up your business and how you can take these and replicate them for further growth and more success.