4 Questions to Ask Yourself Before Franchising a Business
If you own a business and have come to a place where you want to level up but don't know how, consider franchising. An established business concept with a proven track record, franchising your business can be the way to grow both your brand and your bottom line. Let's break down just how to franchise a business and how to know when it's the right choice for you.
What does it mean to franchise a business?
Franchising means opening a new location (or several!) using your name and brand, with someone else paying you for the right to run it. Franchisees buy the rights to operate under your name (while agreeing to adhere to your standards of operation) in return for some of the profits. You bank the rest. Like any biz choice, this one has its pros and cons, but when it comes to expanding both brand and business, learning how to franchise a business is a must for any owner. Who knows? This might just be what you've been looking for.
5 steps for franchising.
By selling your first franchise, you're also creating the structural framework for all future franchise sales. So, learning how to franchise a business, going through the process of crafting your first FDD (more on that, below) and marketing your new expansion opportunity all do more than just lead to that first franchise agreement. The process actually creates an entirely new stream of revenue, utilizing an existing business and brand. If you've got an empire-building mindset, then franchising can be a killer way to get there.
1. Know the landscape.
Much like the way you evaluated the market and studied other businesses similar to the one you were dreaming of when you first drew up a business plan, franchising begins with taking an honest look at what you need, what you have to work with and what you want to achieve. You need to set realistic goals in order to do this, and knowing how to franchise a business, as well as studying the way other businesses have done it, will play a big part in planning your strategy.
2. Create a competitive offer.
While researching other businesses, try to find out as much as you can about how their franchise sales work. You also want to be well-versed on the fees, agreements and other factors specific to franchise agreement negotiations in order to offer potential franchisees sufficient incentive to go into business with you (and not those other businesses).
3. Craft your FDD.
Your franchise disclosure document is essentially the outline of your franchise model, as well as your sales pitch. This document spells out what a franchisee gets when they pay the franchising fee and go into business for you. It will include things like an option to buy more than one franchise at a time, either now or in the future, as well as spelling out your expectations for daily operations and overall adherence to your brand guidelines.
4. Get your FDD a legal edit.
States vary in their compliance requirements, which is especially important to take into account if you plan to expand beyond the borders of your home state. You'll need to make sure you FDD includes all the additional forms and sections each state in your projected territory demands. Luckily, there are lawyers who specialize in franchising and other business concerns, so they can help you learn how to franchise your business the right way, even if it's your very first time.
5. Market to potential franchisees.
Once you have your franchising plan and your disclosure document, you need to start marketing the fact that you're selling a franchise. This is where the strength of your brand, your brand story and your professional reputation all come into play. All three of these factors can position you as an excellent investment opportunity for potential franchisees.
How much does it cost to franchise a business?
This can vary. Every business that goes into franchise development has to create their FDD from scratch, adapt (or create outright) an operations manual and plan their marketing strategy. The size of your business and the scale at which you want to franchise, may not really affect your bottom line at this point since what you're doing at this stage is developing the structure for all future franchise sales. That doesn't mean this stage is cheap, however. Online estimates range from about $25,000 up into the six figures.
A large part of your costs is going to be tied up in the legal side of things. Remember, you're going to need to work with a lawyer or other franchise expert to make sure you're checking off absolutely every box and adhering to all area- and industry-specific ordinances and compliances. While this can cost a pretty penny, it's also worth it.
How long does it take to franchise a business?
Franchise development isn't something to be rushed into. And you want to know everything involved in how to franchise a business before you do anything else. There's a lot to learn, so it's okay to approach the process in stages. Meaning the simplest answer to this question is: it takes as long as it takes.
The legalities involved can take three or four months, once your ready to go public, but creating your FDD, an operations manual and everything else you need to actually make that first sale? That's up to you, your motivation and how much time and effort you have to put into this new venture.
Is franchising right for you?
If you've got a solid company with a bankable brand, franchising is definitely an excellent way to expand your operations, growing that biz without stretching your own self thin. But is it the right choice for you, today? While there are franchise consulting firms and, again, lawyers and experts to talk to, there are also a few basic questions you can ask as you investigate how to franchise a business to see if it's really for you.
Is your biz viable?
When you franchise, you sell your name, your brand and your business model. So you need to be sure that the biz model is worth marketing. In other words, is what you do here and now going to work somewhere else, for someone else?
Is your biz salable?
Do you have a good reputation and a strong brand? Address weaknesses here before ever moving forward. You're asking franchisees to believe in you and what you do, enough to invest their money and themselves into growing this business. Make sure you're giving them something worth all that effort.
Is your biz repeatable?
Just because you're the most successful retail establishment in town doesn't automatically mean you'll be a hit in the city or even the next town over. Ask yourself if your biz is currently successful due to any specific local factors or if it really could work in a totally different region.
Is franchising right for your current budget?
Because you're not only putting money into this — you're also investing your time and energy or creating a team to do the same. Is this something your biz can afford to support for however long it takes to launch this new endeavor?
The bottom line for figuring out how to franchise a business? Take a good hard look at where your company is today, how it got there and if you're willing to bet someone else could make it work again in another location.
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