For many entrepreneurs, franchising is a great way to bring in additional cash flow and increase brand awareness. If your business is ready for that next step, it can be a great business move; if not, it can be disastrous.
So how do you know for sure if you’re ready?
If You have a Repeatable Business Model, You Might Be Ready
A business that is franchise-ready must be unique enough to differentiate itself from the market it will be introduced into; the last thing you want is to be “Generic Coffee Bar #523” in your next town.
Moreover, some businesses are not able to be duplicated, either because they rely on area-specific resources, have a one-of-a-kind location, or any number of other factors that limit it to one specific place. If you’re confident your business can survive in a town 2,000 miles away just as easily as it can there, then you might be ready for franchising.
If You Have a Positive Return On Investment, You Might Be Ready
The ability to attract potential franchisees is just as important as whether or not you want to franchise in the first place. For this reason, it’s important to take a step back and look at the actual cost for the franchisee to copy your concept — is it sustainable? How long will it take for them to recoup their investment? How long until they begin to see positive cash flow? Some business owners want to see at least a 15-20% ROI by the third year of operation — otherwise, they most likely won’t be interested.
If You Want to Be a Franchisor, You Might Be Ready
Let’s face it; not everyone is cut out to be a franchisor. While there are some nice financial returns (potentially), there are also significantly more management issues, such as building relationships with franchisees, making sure the brand stays consistent, not to mention the accounting headaches that can result from operating several locations
One of the trickiest parts is understanding the balance of authority. While you technically have the final say over the brand as a whole, franchisees have the right to run their store as they see fit, which means they are not your employees and shouldn’t be treated as such. If you try, you can expect a lot of conflict.
Still not sure of whether you want to take the leap? Visiting a local expo franchise trade show can help you gain a better idea of what you’re facing. But ultimately, deciding to franchise is a matter of choice: if it aligns with your vision for the company, then it is worth investigating. If you’re not truly committed, it can be a gigantic hassle — one that has the potential to sink you almost overnight.