Should You Consider Franchising Your Business?

“Where do you see yourself in five or ten years?” It’s the age-old question asked of us by business leaders …and sometimes by our therapists. But wouldn’t it be nice if we could pose the same question to consumers and the overall economy?

Unfortunately, no one can predict the economic future with complete assurance, but there are indicators that can guide us. For instance, the International Franchise Association had forecasted for 2024 that franchising as a business strategy would increase by 4.1 percent to $893.9 billion. In addition, franchises’ gross domestic product was predicted to continue to grow at a pace of 4.3 percent. That upward trend bodes well for 2025 as well.

And while the forecast for 2025 wasn’t yet released at the time I’m writing this, even with domestic and international economic hurdles ahead, franchising as a business strategy has historically been better equipped to weather choppy waters than small independent businesses. Why?

The Advantages of Franchising Your Business 

Franchises can take advantage of their size for buying power and vendor accommodations, plus they have the additional resources and staff that come with having more units and higher revenue. But even more attractive is the benefit of being able to grow your concept with other people’s money. Your potential franchisees will not only pay you monthly royalty and marketing fees, but also fund the costs of opening their own units while using your established brand and systems. Potential franchisees are already familiar with their markets, so they have the inside scoop on desirable real estate sites and local regulations, saving you the cost of investigating each potential new market from scratch.

While there are myriad reasons to consider franchising as a growth strategy, not everyone — or every concept — is a good fit. Joint ventures are another avenue to explore, as are distributorship and licensing agreements.

In the end, franchising is a collaborative relationship between franchisor and their franchisees. It’s no longer a vehicle to drive home the edict, “my way or the highway.” While a good franchisor will have detailed systems in place and strict standards, they must be willing to listen to their franchisees and, when appropriate, act on that feedback. If your leadership style is dictatorial, you might want to look at other options for growth.

Strong leadership, from both the founder and their senior staff, however, will be expected by anyone who buys into your concept. Franchising, more so than many other business expansion methods, is a relationship business and your franchisees need to trust you and want to follow your lead. They will expect vast experience, expertise and innovation from you and your team.

The other hallmark of franchising is consistency. One of the reasons branded hotels have been so popular is that travelers know what to expect when they check into a Hilton or a Super 8. A fried chicken sandwich from a franchised chain will taste the same in Portland, Maine, as it does in Portland, Oregon, if the franchisor and franchisee are both following the brand standards. That consistency should be easily recognizable by a franchise’s trade dress.

Is Franchising Right for You? 

Equally important to your leadership skills is your concept’s ease of operation and whether it has the right stuff to attract both customers and franchisees in markets other than your own.

Here are some of the questions to consider when deciding on growth vehicles:

• Do you have a proven concept with established systems and “recipes” that can lead to an attractive ROI for an investor? Anyone signing on with you will want to know if they can make more money as part of your franchise system than they could on their own.
• Is your concept on trend, but not a one-shot wonder? For instance, “gamification,” where you play video games while working out, may be trending right now, but will it still be hot in five years, or will fitness geeks move on to the next shiny studio offering another new workout to make exercising fun?

  A desirable concept should have staying power and meet a need that’s not currently being satisfied — or better yet, one that customers didn’t know they needed until they saw it. Examples of some early trends that proved to have legs are senior homecare, doggy daycare and coffee concepts. Others that were hot for a while but have cooled off include video rentals and frozen yogurt. If you’re offering a service or product in a segment with several established players, you’ll need to offer something unique, with a twist that is better, quicker, or more desirable. The massage industry borrowed the idea of offering memberships to ensure return customers (and provide working capital) from the fitness industry, and several other similar business models, from eyelashes to facials, have followed suit.

• Is your concept easy to operate, but complex enough that a competitor couldn’t figure out how to do it on their own? This involves having something of value to sell in well-documented operations and training manuals and systems that can be easily executed with limited handholding by the franchisor. While you will be offering training for both the franchisee and their senior staff, plus field support people, you want them to be able to get their unit up and running in a timely manner. So that brings up another question: Have you kept up with the latest technology?

• How many units do you have open and are they in different markets? Proving out your concept with more than a single unit will give you more credibility when it comes to both documenting your systems and selling them.  But it is not a necessity, as Massage Envy proved when they started franchising with a single outlet.
• Is your trade dress, including logo, name, taglines, etc., protected with trademarks or copyrighted? Do you have an instantly recognizable product or storefront?

What Are Your Next Steps? 

Choosing franchising as your growth vehicle is akin to running two businesses — you’ll be gearing up to run a franchise division while also doing the day-to-day duties and long-range planning of your current business. You may find that some of your current staff have the skill set and stamina to do both, but more often you’ll find you need a separate staff with franchise operations, sales and marketing expertise – or you might outsource some of those functions. No matter what, having enough capital is paramount, either from lenders or investors or by using your company’s cash flow.

Start by consulting your trusted advisers, including your accountant and attorney. Start with a basic assessment of the franchisability of your concept and whether franchising fits with your growth goals.  A good franchise consultant can ensure that you do not waste time and money pursuing a strategy that is destined to fail.  And, of course, you’ll also need to hire an attorney who has expertise in franchising. They will be charged with creating your franchise agreements and Franchise Disclosure Document (FDD), which 14 registration states require before you can sell franchises in their states.

Franchising is an investment, and can be costly, but trying to save money on legal and consulting services never pays off. A franchise professional who has helped numerous other business leaders franchise their businesses can save you time and money by ensuring that you don’t make expensive mistakes. A franchise expert can also create your franchise marketing plan and training program and advise on best practices that will set you up for success.  They can also advise you on the advantages of being purely a franchise network or to continuing to develop corporate stores along with franchised stores.

Once you decide how you want to grow your company, it’s not too early to plan your exit strategy. So, we revisit the question asked at the beginning of this article: “Where do you see yourself in five or ten years?” Do you want to continue with the current plan and grow a franchise network? Would you take on new partners? Or, would you court a private equity firm or some other entity to buy you out once you’ve grown to a certain size and market valuation?

When there are more appealing options and answers than unanswered questions, that is when you know you’re on the right path.

Written by Mark Siebert.
Have you read?
Most Innovative Countries in the World.
Countries by Average Wealth per Person.
Countries with the Highest Age Dependency Ratio.
Best Universities In The World.
Best Fashion Schools In The World.