Should I Franchise My Business

Should I Franchise My Business?

        Entrepreneurs often ask themselves the question:  Do I want to expand my business?  If the answer is yes, then the question becomes, what is the most efficient way of doing this?  Should I open my own units with my capital and my human resources, or should I let someone else use their capital and human resources and I will supply the systems, intellectual property and training?  Those are the key questions facing the entrepreneur who is anxious to expand but who wants to do it in the most cost effective manner.  The answer to this vexing question is that the business owner should seriously consider franchising his/her business model as the best way to expand.  Then the question becomes, is my business even a candidate for franchising?  The answer can be found below, as I have set out the four basic questions that the business owner must answer:

• 1. Have a successful model. It is impossible to create a franchise program without having at least one successful operation, a pilot, if you will. It is not feasible to think that if your core business loses money and is unsuccessful, that a franchisee will be any different. It is imperative that your franchisees be successful, otherwise franchising does not work.
• 2. Make sure your business model is replicable. You must be able to build clones of your operation, otherwise the system will not work. Have you ever seen a McDonalds without the infamous golden arches? That is just one example, but it goes beyond the look. It is the method of operation that must be duplicated.
• 3. Attain capital for your franchise. You must have capital in order to roll out the franchise program. You cannot believe that franchising will cure your cash flow issues, you need to have money in order to roll out the program. Do not view the program as a way to fund an undercapitalized business model.
• 4. Prove your model works! The concept that you are trying to franchise must lucrative. You must demonstrate that your concept works before you try to offer it to the public as a franchise. If the business model is a failure, your franchisees will inevitably fail as well. Franchising can be a wonderful business model, but your initial model must work first, otherwise franchising will not be possible.

        These simple tenets will aid the business owner in determining whether the franchise model is the proper vehicle.  Once that determination has been made, the business owner should enlist the assistance of seasoned franchise professionals who will assist in developing the franchise program.  Franchising is a vehicle for growth using the capital and human resources of someone else (the franchisee).  How great is that?  It is simple, yet complex.  The franchising relationship goes much deeper than building the unit and collecting royalties.  It is a starting place for companies that want to grow but do not have the internal capital or human resources, like Starbucks, to do it by themselves.  Franchising is not for every company, but for those who meet the criteria set out above, it is the most efficient method to expand with a minimal amount of cost.

Harold L. Kestenbaum, Esq.