Is your small business profitable and growing? Do you constantly get out-of-town customers wondering when you’re going to open a location in their neighborhoods? Are you secretly kind of bored running just one, smoothly operating location and want to feel the excitement of your startup days again?
If your answer to these questions is an unqualified “Yes,” maybe you’re ready to franchise your business—the key word is “maybe.” To see if you’re really in a position to franchise, ask yourself these six questions:
1. Do I have the standardized systems needed to franchise my business (or can I create them)?
To franchise a business, you need operational systems and processes that can be standardized to provide a consistent product or service by all franchisees. Standardization is also required to train new franchisees and their employees. For example, if you own an ice cream shop, do you have a written system detailing all the steps of serving customers, such as
- How and when wash the ice cream scoop
- Whether to put on gloves first
- How much ice cream, hot fudge sauce, toppings, and other ingredients to use (such as “one full scoop” or “one-fourth cup”)
These little details are what can make or break a franchise’s success and profitability. If different franchisees serve ice cream differently, you could run across these problems:
- Your ice cream cones and sundaes won’t be consistent, which will negatively affect your brand reputation. One location might serve heaping scoops of ice cream, while another might skimp.
- Any locations that aren’t consistent about measuring and weighing ingredients will see less profits.
- Unless there’s a standard process for serving, customers may wait longer, which hurts the customer experience.
Before you even think about franchising, you also should have an employee handbook and an operations manual and use them consistently.
2. Does my business rely on my personal presence?
This is a challenge for a lot of service businesses, especially those that began as one-person companies. For example, if you’re a talented graphic designer or hairdresser, clients might only want to work with you—not your employees, who they perceive as less skilled. It’s impossible to franchise with only one of you.
If you have this problem, you can pave the way for franchising by training employees to provide the same services you do (create an operations manual to teach them). Next, begin easing your customers into working with your employees instead of with you. Some ways to do this are by charging more for your personal services and less for services provided by employees (as hair salon owners often do) or by having employees handle all of your new customers while you keep serving your “regulars.”
3. Am I ready to follow all the rules and regulations to franchise a business?
Franchising is laden with red tape and regulated by both state and federal laws to protect franchisees. The FTC’s Franchise Rule requires franchisors to give prospective franchisees a Franchise Disclosure Document (FDD) before buying a franchise. This legal document often runs to hundreds of pages. It provides detailed information about 23 aspects of the franchise offering, including:
- Initial and ongoing costs
- Any litigation in which the franchisor has been involved
- Background of the franchisor and its key employees
- List of current and former franchisees and locations
- Three years’ worth of financial statements
- Your obligations as a franchisor (such as providing training or advertising support)
- How franchise renewal, termination, transfer, and dispute resolution will be handled
Get the full list of items required in the FDD.