How Do You Know it's Time to Turn Your Small Business into a Franchise?
There is a 25 percent chance a startup business will fail in its first year and a 50 percent chance the same business will fail in the following five years, according to Entrepreneur magazine. You, on the other hand, have successfully beaten the odds of the high failure rates and are ready for the next step in business growth. But before you take the leap into franchising your business, make sure you can affirmatively answer the following questions.
Is There Demand in Other Markets?
While your business may be doing well in your area, you have to make sure the concept is viable in other markets and is scalable. It may not be worth the time and cost to franchise if you cannot successfully reproduce your business in another area and receive the same, if not better, returns. Think about your concept and consider if consumer demand for your product or service in other areas would be as great. Customer profiling, competitive landscape, and market demographics should all play a role in that decision.
In addition, in order to grow through franchising, beyond a demand for your product or service, you also need a willing investor in each market. By researching the types of businesses that have thrived or failed in specific markets can also be helpful in creating your brand. Pay attention to the current trends in franchising and decide if your business fits or not.
Do You Have The Money Available to Begin a New Business?
A good rule of thumb when considering your options in franchising has to do with the current number of units you have successfully opened. The chances of your business transforming into a nationwide franchise can be related to the number of profitable units that are currently open and running. Your business’ growth and popularity are also related to the amount of capital you have available to begin this new venture.
You must ensure you have enough money to begin franchising. Your role as a business owner will be stifled as you put in the time and money to properly sell your franchise idea. Just as you plan your capitalization of another business unit, you must also plan your investment and timeline in franchising your business.
Can You Focus on Building and Supporting a Business Concept?
You must be able to spare the time, energy and resources before you begin the franchising process for your business. If there are internal issues to address, make sure you tend to them before you switch gears from business owner to franchisor because you will be focused on many different activities as a franchisor.
Tariq Farid, the owner of Edible Arrangements, recommends opening a second store on your own before franchising to other business owners. You will be able to work out the kinks yourself rather than with a separate business owner as a franchisee.
As a franchisor, some of the new aspects you will have to focus on:
- Legal issues – Among other things, this will require drawing up a franchise disclosure document, which provides prospective franchisees with information about the franchisor and the franchise system.
- Sustainable growth – How far do you want your franchise system to reach? Do you have certain markets in mind?
- The right franchisees – You will want to be selective as each franchisee will be representing your brand. Do you have your financial and operational criteria set?
If you answered yes and feel confident about expanding your business through franchising, Winmark Franchise Partners can consult with you about your next steps. We have helped franchise brands achieve unparalleled year-over-year franchise growth. Get in touch with us today to get started.