Franchise Your Business Considering Franchising an Existing Business?

Franchising is the most dynamic method of expanding a business in the twentieth century. Yet, not all of those that venture upon this strategy will find that to be a “road to riches.” Many companies have tried to franchise only to fail in the attempt.

When making a decision to franchise, the iFranchise Group believes that business owners must first determine if franchising is even a legitimate option. With this in mind, the iFranchise Group has developed twelve criteria of franchisability that you can use to test the franchisability of your business. While not definitive, applying this test to your business will at least allow you to know where you stand and perhaps provide you with some insight as to how a business must be improved in order to franchise.

Secondly, business owners should gain a thorough understanding of what is involved in franchising in terms of resources, costs, and personnel. While your business may be ready to franchise, there may be financial, operational, or resources barriers that should be overcome before proceeding with this strategy.

Finally, assuming that you have a franchisable business and the resources necessary to succeed, your next step should be to determine if franchising is the best strategy based on your own personal goals and objectives. Just because a business can be franchised does not mean that it should be franchised. To do this, you will need to measure the advantages and disadvantages of each of your alternative strategies versus the advantages of franchising.

Each strategy should then be evaluated based on the goals, objectives, resources, and tolerance for risk. To best analyze these alternatives, we suggest that you order our free video on “How to Franchise a Business.” This video will provide you with the framework for analysis that will allow you to understand whether franchising is the best strategy to allow you to reach your business goals.

ADVANTAGES IN FRANCHISING

While franchising provides franchisees with a proven system and the support of a much larger organization, the advantages to the franchisor are even more significant.

Capital– Since franchisees use their own capital, the franchisor has virtually no investment at the unit level. Franchising allows companies to leverage off the assets of franchisees.

Return on Investment– Because of this lower investment, ROI will be significantly higher.

Risk Reduction– With no capital invested in units, risk is reduced substantially.

Limited Contingent Liability– The franchisor will not be signing leases, taking on financing, etc., and will thus expand with limited contingent liability.

Speed of Growth– By leveraging off of the time and efforts of its franchisees, a franchisor can grow much faster without adding staff.

Reduced Role in Day-to-Day Operations– As a franchisor, your primary concern involves the franchisee’s top line performance, reducing the scope of your involvement in day-to-day management.

Reduced Vicarious Liability– The liability for acts of employees (e.g., sexual harassment, EEOC violations, etc.) and for occurrences in the unit (e.g., slip-and-fall) accrues to the franchisee, not the franchisor, for the most part.

Highly Motivated Management– Franchising can provide a company with highly motivated management who will treat individual units as its own.

Quality Control– Franchisees generally keep their units in better operational shape than unit managers and, as a part of the community, are better able to promote these units locally.

Long-Term Management– The franchisor can invest in the long-term training of its franchisees, as they are unlikely to leave short-term.

Unit Performance– Units are generally better run, as is reflected in the fact that franchised stores generally outperform company-owned stores in terms of sales volume.

Lean Structure– Franchisors can grow the organization without adding significantly to overhead.

Brand Building– This ability to grow the organization without substantial additions to overhead will allow franchisors to grow their retail presence and their brand more quickly and effectively.

Advertising– Franchisees will often contribute to a common advertising and promotional fund. This fund will be used to promote the brand under the direction of the franchisor.

International– International expansion becomes easier, faster, and carries far less risk since a local partner becomes involved.

Moreover, it is important to note that franchising is not an exclusive strategy. Most franchisors use it in conjunction with company-owned growth to compound growth.