Is Franchising Right for Your Business?
Your business is running smoothly and you have a strong desire to grow. Your clients and/or customers ask you all the time if you have other locations. It's time for you to expand (congratulations!) but you're not quite sure how to do it. So what is the best growth strategy for your business?
Should you open more company-owned locations or franchise your business? As a Franchise Developer who has franchised all types of business all over the United States, here's how I sum up the benefits and risks of each option.
Company-owned expansion may be the best option if you are well-funded to open multiple locations quickly.
If you open more locations yourself, you will:
- Make more money as you retain all profits from the business.
- Maintain control of all aspects of business operations and keep trade secrets in "the family".
- Have the option to share resources and employees between your locations.
- Research the demographics for each location, so you can properly market and advertise your business.
- Need to fund each location and be responsible for all costs. Basically you will have 100% liability for each location.
- Be responsible for the management and operation of each location, including hiring & training of managers and employees.
- Experience slower growth and branding as this is contingent upon how much money you have to continue opening locations. In other words, if you want your business to become a well-known brand you need to open more locations in a short amount of time.
- Be challenged with finding solid, key employees in order to minimize employee turnover. Constantly training new employees can erode your profits and create burnout.
Franchising your business may be the best option if you do not have or cannot obtain the funding necessary to open multiple locations quickly. If you franchise your business, you will:
- Not have any fiduciary responsibility for each location nor be responsible for hiring employees or daily operations for each location.
- Receive an ongoing fee (royalty that can be structured a number of different ways) for each franchise rather than share in the profits.
- Experience rapid expansion into markets you could not otherwise reach, which will support becoming a well-known brand.
- Be expected to continue to grow your brand in the interests of the entire system (for example: continue to create new programs and services or introduce new products and marketing pieces for everyone to use).
- Need to "let go" and allow others to operate your business (as long as they follow your standards).
- Experience royalty revenues that may be less than profits from company-owned locations in the beginning.
- Have to spend resources and time to recruit franchisees.
- Become less involved in the day-to-day operations of your business and more of a mentor, which means you will need to make yourself (or key personnel) available to counsel franchisees when they seek assistance.
Of course, everything is not always black and white. Some things just "feel" right. It is the "fire in your belly" attitude that drives you and many other successful entrepreneurs! Passion, motivation, initiative and attitude are what got you this far. Now may be the time to either invest in opening other company-owned locations or harness what has made you successful so you can teach others (franchisees) how to be successful at operating your business in their market. Here are a few questions to ask yourself to validate your gut feeling that expansion makes sense for you:
- Are your services and/or products unique and different?
- Is there a demand for your services and/or products?
- Are you profitable?
- Have you created a unique way of doing things?
- Does what makes you different from your competitors directly contribute to your success?
- Do you have “copycat” competitors popping up?
If you answered YES to any of these questions then you obviously are doing something right. Take a look at your business to determine which expansion solution makes sense for you based on the comparisons above. If franchising is the direction you choose, then know that you will be bringing into your system enthusiastic entrepreneurs who will invest their time, energy and resources into opening your business in other markets.
David R. Waldman is the founder of The Franchise Maker® providing complete franchise development services to business owners who wish to franchise their business nationwide. The franchise Maker® is recognized in the industry for making the process to franchise Easy, Fun and Affordable.For more information about Franchising your business, please contact The Franchise Maker.