Should I franchise my business?

Many small business owners view franchising as an end-goal to expand their business either regionally or nationally or at least something to aspire to. It may be the right strategy for some, but with a strong emphasis on the word "may".

At its core, franchising is a growth strategy. A business owner must weigh the pros and cons of retaining full ownership and control of operating multiple outlets versus granting branding and operating rights to other business owners through an established franchise agreement. For some, its an easy decision to make, but for those thinking of franchising here are six questions to ask yourself to see if you are even ready to explore going down that road?

1. How long have I been in business?

While there is not an established time frame, if you've been in business for less than two years chances are you are not ready yet. There are of course exceptions to that, but for those of you for which the business you are contemplating on franchising is your first entrepreneurial venture and is less than two years old, wait.

Ideally, your business should be well established with at least three full years of run rate, if not more. In fact, the more the better. The principle reason is because your franchisees are going to seek direct guidance from you and as markets shift or competition in your industry space increases, your time-in-business experience will greatly matter.

2. Is my business profitable?

This should seem obvious, but in deconstructing that question further ask yourself these additional questions: (1) How long did it take?; (2) What led to my profitability?; and (3) Am I operating under unique circumstances to make it profitable?

Prospective franchisees will ask the first two questions a lot and the really experienced ones will ask the third. The first question is easy, but the second question is vital for you to understand if you thinking about franchising. If you can trace back your steps on becoming profitable to a specific set of deliberate action items - write them down. These steps will become the genesis of teaching others to becoming profitable themselves.

The third question is sometimes the hardest to answer because in many cases the answer is not what we would like it to be. Just because your business is profitable does not automatically mean that those that copy your exact model will experience the same results. Ask yourself if your profitability is the result of: a special lease arrangement that is highly favorable, a special employment arrangement (family members or friends are taking a smaller salary or none at all), or unique market circumstances (you sell canoes and you had a huge spike in business because your city flooded, your largest competitor went out of business and you inherited all of his customers, etc.)? If your profitability is the result of any one of those questions, be grateful for your circumstances but you may want to think twice about franchising.

If you do in fact choose to franchise, your profitability, the way in which you became profitable and your market circumstances will be put under a microscope. Always remember that. Your time-in-business will also play an important role because the more time and experience you have with your business, the greater capacity you will have to coach and advise your franchisees. 

3. Do I have an established set of processes and procedures (an established way of operating)?

This catches a lot of new franchisors off guard. In most cases, we say to ourselves "yes of course I have an established way of operating. I'm doing it!" That may be the case, but how equipped are you to teach your manner of operating to others?

 A good test is if you have had the opportunity to hire a manager or director to run your business or a business location successfully. The same process that you taught (and hopefully documented) needs to be expanded upon into a full time training program. Many new franchisors scramble to complete this step after they are well into their franchise agreement creation as they learn that it is a requirement to have an operating policies and procedures manual.  An old manual pulled out of the drawer may fill the legal requirement, but it is doubtful that it will fulfill the "operation reality" requirement.

If you are contemplating on franchising your business, this is often the place that you want to start. As you document your entire process on how to launch, operate and run your business you will immediately discover areas that can be improved and streamlined simply going through this process. Your operational agreement is much more than a business plan. It contains the entire scope of your business.  It is a great opportunity to involve current employees and make this a very hands on process. It will also help you to develop your full training program. 

4. Am I working full time 'in' my business or 'on' my business?

I imagine that we'd all like to say at some point that we are working "on" our business rather than the day-to-day operations but reality dictates otherwise. If you are thinking of franchising, your answer must be: "I am working on my business."  

Franchising, in many aspects, is almost a separate business from your own. You will eventually need talented people to handle regional or national marketing efforts, training efforts, sales efforts, franchisee development efforts, media and PR initiatives, etc. Don't get overwhelmed as a lot of these efforts will become natural and instinctual, but the fact remains that as you launch your franchise, your franchisees become your #1 priority in helping them to re-create your business in their individual markets. Your principle business will of course (and must) continue to run, but the decision to franchise is a decision to teach others to do what you have accomplished and you will need to incorporate operational, marketing and sales efforts to facilitate overall growth. 

5. Do I know who my target customer is?

Such a simple question, but I'll ask it in a different way. How do you know who your target customer is? If you know, your answer should be quick and definitive based on actual experience, feedback and results. If you think you know, but don't have an experience base to prove otherwise, this will present a challenge on many fronts.

Knowing who your target customer is essential in providing a business opportunity to franchisees who will depend on your experience in appropriately marketing to the target customer of your business. This is true in any industry and by helping your franchisees to launch with that knowledge will save a lot of time and money in growing their business. 

6. Do I have an effective and regular marketing strategy?

This plays into knowing who your target customer is, but nothing is more frustrating to a franchisee who feels that a national advertising fund or campaign falls short of the mark. Marketing strategy is much more than utilizing different time-tested marketing methods such as direct mail, mass email campaigns, social media, radio, television, billboards, public advertisement on buses and taxis, etc. 

Marketing strategy is much more so about using the right methods to communicate directly to your target customer.  For some businesses, the target customer may be virtually anyone within a relatively short driving distance (such as owning a gas station or a convenience store, etc.), but for others, especially service based businesses, your target customer might be a particular demographic (income, gender, age/generation, etc.) or even more challenging, a particular segment or psychographic within a demographic which further defines how particular consumers feel or emotionally respond to your product or service. In either case, having a definitive marketing strategy that is proven to attract your target customer will go a long way in positioning yourself to successfully franchise your business. 

Conclusion

Always remember that franchising is ultimately a growth strategy for your business and can be highly rewarding and exciting, but you must be prepared. Asking yourself these six questions will indicate your overall level of preparedness and can serve as a guide for you to get started. If you are positioned well and are prepared, you will save a lot of time, energy and headache and your franchisees will thank you for it.