FRANCHISES
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To Franchise or Not to Franchise
If that's your question, PINK may have your answer.
By Taylor Mallory
There are currently more than 1,200 franchise companies employing one in seven U.S. workers, according to the International Franchise Association (IFA) – numbers that have continued to climb over the years. Franchising a successful small business has become a lucrative way to grow a company, but it comes with a steep price tag (from $100,000 to $500,000).
Is franchising a good investment for your small business? PINK asked industry experts. Here is what they say all business owners should consider before franchising.
Are You Making Money?
First and foremost: Are you profitable – do you have what the industry calls "proof of concept"? "Also, make sure the model works when you replicate it in a franchise situation by deducting the additional fees franchisees will pay to you, the franchiser, from your location's revenues," says Kathryn Rookes, legal vice president for Focus Brands.
Seeing Double?
Is your model easily replicated? Before a company can be licensed to franchise, federal rules require an extensive operating manual (or at least the table of contents to prove one exists) as part of the Uniform Franchise Offering Circular, a complicated disclosure document. And the simpler the business model, the better the franchise.
Moe's Southwest Grill, a Focus Brands franchise, is a great example, Rookes says. "There are a limited number of items on the menu," she explains. "You can teach someone to do it in a day, unlike a restaurant with 50 items on its menu." Businesses that require highly specialized skills or licensing (like med-spas, which require doctors in some states) are more difficult to operate.
What's in a Name?
A lot. Franchisees will be buying your strong trademark and system, so the sooner you register your company and product names (a process that can last at least two years), the better. "Do some research into that name, and team up with a marketing company," suggests Karen Spencer, CEO of Fran-Systems and PINK's franchise expert. Companies might love their name and skip the expensive market research, but that can cost much more down the line, Spencer says.
Are You a Team Player?
Many franchises fail because owners don't transition well from entrepreneur to franchiser. "When you own a business, you tell people what to do," Spencer explains. "Franchisees aren't your employees. You want to make sure they adhere to the system [without dictating] how to run the business day-to-day." That takes a great deal of leadership talent and restraint, Spencer says. If you aren't a naturally collaborative leader, "get that education through books, classes and shadowing experienced franchisers," she says.
Do You Have Somebody to Lean On?
Hire an experienced franchise team, Spencer says, including a franchise attorney, a field operator with experience in your industry, and a salesperson intent on finding quality franchisees. Anita Baron, director of business development for Subway's franchise finance division, adds, "Be careful whom you choose, because other franchisees' financing will depend on your success and that of your first franchisees."
