Franchising is a model for growth, but it can also be an effective way to scale your business.
It provides the framework to increase revenue through developing units in new markets, as well as increase efficiencies by deploying a proven business model that independent operators invest in.
Franchisees then pay royalties that you, as the franchisor, can reinvest into improving operations for the franchise system. This model enables you to go outside of your own capital or other investment sources to grow responsibly and effectively scale.
Remember, growth and scaling are not synonymous terms. The latter prioritizes increasing the value of your business by increasing your revenue more rapidly than taking on new expenses, whereas you can grow your business with additional revenue but still incur financial losses that result in zero net gains.
When you don’t plan to scale your business and only focus on growth, you’ll likely come to a point where the cost to grow isn’t worth the financial gain.
And if you’re planning to grow through franchising, it’s even more imperative to set yourself up to scale effectively.
Here are some straightforward tips to help you get in the right mindset and position to scale your business through franchising:
Seek Out Strategic Advice
As a founder or owner, you likely know your business better than anyone else. However, knowledge of how to effectively replicate that business at scale and develop the systems necessary to grow through franchising is something that new franchisors don’t often have.
Whether it’s insight into vetting and securing the right vendors who will be able to supply your units across geographies with everything they need or understanding the legal requirements to franchise in each state, getting strategic advice from those who have gone through it before will help you avoid unnecessary hiccups in the process of franchising your business.
Establish Specific, Time-Based Goals
You’ll quickly find your capital reserves dwindling and growth stagnating if you don’t set specific goals that you can realistically accomplish within a given timeframe. Early goals can include:
- Setting a deadline for developing training programs and operational manuals
- Finalizing market research for regions where you’re looking to grow
- Identifying which positions you need to hire and creating timelines for onboarding
- Building out a marketing calendar and collateral that your franchisees can use to grow in their local markets
- Creating a plan that allows you to leverage your resources to work synergistically across corporate and franchised businesses strategically to minimize initial unnecessary investments when possible
As you identify your goals and the timeframe for completing them, it’s equally important to consider the costs associated with each. Doing so will help you develop a realistic roadmap for scaling your business.
Ensure You Have Sufficient Capital
Franchising a business requires significant capital upfront and in the long term. Starting a franchise often requires an initial investment of up to $300,000 and between $1 million and $2 million during the first five to ten years. Your ability to develop operational efficiencies at the unit level and within your corporate team, as well as the financial performance of your initial franchisees, will dictate the rate at which you can scale and keep expenses running lower than your revenue.
Simplify Your Business Model
The more complex it is to operate your business, the greater the risk that your franchisees will struggle to achieve strong unit-level economics. You can eliminate or reduce some of the operational complexity through technology and the vendor relationships you establish.
For instance, full-service restaurants are notoriously challenging to operate, but with the right tools, you can simplify several processes so that franchisees and their staff are working more efficiently. These can include point-of-sale systems that integrate with inventory management software and beverage management tech. Many of these tools eliminate error-prone manual processes that result in increased overhead costs and shrinking profit margins.
The greater the integration between the disparate systems your business – and franchisees – use, the better equipped you’ll be to scale. These types of investments will require an upfront expense, but the result will ideally be a business model that’s easier for your franchisees to operate and enables them to hit their financial targets.
Create and Document Standardized Processes
Many owners and founders may have a training manual for new employees, but it’s an entirely different venture to create training programs and operational manuals for a network of independent business owners. The content of the training and manuals should cover:
- Brand training
- Human resources and people development
- Real estate and construction
- Local marketing and sales strategies
- Operational procedures
- Business plans and financial management
- Supply chain and inventory management
These documented standards and your training will be what your franchisees rely on to execute the business model. When you develop these materials, you’ll be laying the foundation for replicating your business at scale through franchising.
Develop a Franchise Leadership Team
As you look to expand through franchising, you’ll need to take a careful look at your capabilities and skillsets. Your top priority will shift from making sure your existing business is successful to ensuring your franchisees are set up to thrive. This requires a different perspective, additional resources and talents that you may or may not have. And even if you do, it will become unsustainable to try to do everything on your own. You need to develop a leadership team with complementary skills that will help you create a more efficient franchise brand. Some of the roles you’ll likely need to fill include:
- Training and new unit on-boarding
- Real estate and construction
- Franchise sales and development
- Brand marketing
- Vendor/supply chain management
- Human resources
Coupled with technology and brand standards, these individuals will help establish a framework that will help you grow through franchising.
Award Franchise Agreements to the Right People
The first franchisees you bring into your franchise system will set the tone for your ability to scale your business through franchising. They will not only be the first test of how well you’ve developed your franchise infrastructure, but they’ll also be validation of your brand for future investors.
Instead of having a group of friends be your first franchisees, seek out candidates who have strong business acumen, familiarity with your industry or niche, thrive in a process-driven environment and believe in your brand’s mission and products or services.
Empower Your Franchisees
Ultimately, it’s up to you make sure your franchisees have everything they need to execute the business model. As mentioned before, be sure you have the technology, standardized processes and support in place and accessible to owners whenever they need it. At the same time, be an active listener when communicating with your franchisees – they often end up being a treasure trove of first-hand experience and data that you can then use to make adjustments to improve your business model and allow you to scale more efficiently.
With 30 years of franchising experience and more than 800 franchise owners representing over 1,250 locations for five brands, Winmark Franchise Partners can help businesses develop strategies to scale businesses through franchising that’s right for them. Contact us here or at (844) 234-8520.