So your business is an established success in its local community. Customers love you, profits are steady, and you're ready to expand your enterprise. But replicating that success in new locations is never guaranteed. FranBiz can help guide you past the hidden pitfalls of franchising your business.
Four Questions to Ask Yourself Before Considering Franchising
You should have a working model, with a minimum of one year of operations and experience, in order to offer a 
PROVEN concept. Too often, entrepreneurs rush to market which has never been tested adequately. Convinced their concept is a winner, they hurry to bring others into the business with them. The fear that someone else will steal their concept is a great motivator. Don’t be in a hurry to minimize the opportunity. FranBiz can reduce your fears and help optimize your potential.
2. Is Your Brand Name Or Trademark Regionally Recognizable?
Owning the only company franchise in a large region is rarely an advantage. Opportunities such as brand name recognition, co-operative advertising and volume purchasing power allow franchisees to piggyback on one another’s profiles and success in the marketplace. Ongoing corporate support is usually more robust in regions where they have multiple franchise outlets. If you’ve proven your model and are ready to expand, do it in your own community before you go elsewhere.
3. Can You Offer Co-Operative Purchase Benefits To Your Franchisees?
Inventory, advertising, equipment, and supplies all cost less when purchased by a group rather than just one owner or franchisee. If you have five stores in a 20-mile radius, billboard advertising might make sense. But if you have only one store, it’s probably not the most effective use of marketing funds. If your main vendor will not deliver outside the 20-mile radius, you probably should open units within his delivery area to get the group discounts you offer to franchisees; or you may need to get a new vendor. This is why “clustering” stores in a community is sound business practice when expanding your concept.
4. Is Your Concept Universally Intriguing and Sustainable?
Brands that have struggled to franchise and go national have usually been focused on a singular product, service or technology.
- No computer company has survived franchising because technology changes too quickly for the franchisee to deplete inventories and survive.
- An industry that can visualize a world without its product or service, in the long term, should not attempt to franchise.
- If you only sell beachwear you should think regional (warm weather) not national.
- Franchises that bear celebrity endorsements have not faired well over time. Very rarely does the celebrity status last long enough to recoup all your franchisee's investment, plus reasonable profits.
5. Funding Your Franchise Expansion
How Much Does It Cost?
- Cost can vary greatly depending on the concept and scope of the business.
- Regional, national, or worldwide franchise expansion becomes increasingly more expensive as the area in which you’re operating expands.
- In-house sales people vs. Area development teams can be surprisingly expensive. FranBiz's founders are intimately familiar with the Mail Boxes Etc® / The UPS Store® concept which committed early in its stages of expansion to growing the business through an Area Franchisee Network. Area franchisees purchased the rights to recruit new franchisees in a specific geographic area, earning commissions in the process.
In addition, these same people were required to provide ongoing support to their franchisees, and would earn a royalty in doing so to be paid by the parent franchisor. These area developers were also required to build and operate a pilot center to be used as a model and training center in their areas. This type of structure would cost more to put in place than if a franchisor intended on selling individual stores—one at a time. But, in the long run, it could be worth the extra expense.
6. Where Does The Money Come From To Get The Franchising Process Started?
Many franchise systems are funded solely by the individuals who have fostered the idea; Personal savings, second mortgages or liquidation of other assets have all been used by individuals starting a franchise. There are also private lenders or investors or “angel investors” who, for significant interests in the company or other benefits, may consider funding the franchise when it is launched. Our principals at FranBiz have decades of experience in this type of investment and access to capital.
Common variety regional or national banks generally will not consider any kind of loan to help you get started unless you have equivalent assets for collateral which they can easily access in the event that your concept does not succeed as planned.
Governmental lenders such as the Small Business Association won’t usually consider funding a franchise or a newly-minted entrepreneur, but will often finance a franchisee or a franchise system that has been operating successfully for a reasonable period of time.
Professional Venture Capitalists (VCs) are most likely not going to consider investing in a start-up franchise system. VCs usually look for “proven concepts” that have been franchising for no less than three-to-four years and can boast numerous happy, successful franchisees.
A bare-bones attempt to become a franchisor, using cookie cutter, internet available documents etc, would cost a minimum of $30,000. This under-capitalized approach is not advisable, and there are many defunct franchisors to prove it. Depending upon your concept, a more realistic figure would be upwards of $100,000 or more.
If you have your own capital, and a clear understanding of all facets of franchising, you may be capable of starting your franchise concept on your own. However, if you have a need for capital, or other questions regarding any aspect of building your franchise company, FranBiz stands ready to assist you in your endeavor. We welcome the opportunity to personally discuss your concept with you. A FREE, NO OBLIGATION CONSULTATION with one of our franchising experts is as accessible as a click on the link below. We look forward to your inquiry.
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