Is Franchising Right for Your Small Business?
Is your small business growing to the point where you’re considering franchising it?
Franchises can offer small business owners and entrepreneurs scaleable growth and success that could equal early retirement. But, not every small business is suitable for franchising.
So, before you explore franchising for your small business, start with this guide. Here, we’ll outline everything you need to know about franchising, including its benefits, the signs your business might be ready to franchise when to do it, and the challenges or factors you should consider.
Keep reading to answer the question, “Is franchising right for my small business?”
Introduction to Franchising
At its core, franchising is a business model in which a company (the franchisor) grants individuals or other companies (the franchisees) the rights to operate a business under its brand name, using its business systems and processes.
This type of business allows the franchisee to leverage the established brand, proven business model, and ongoing support from the franchisor in exchange for initial franchise fees and ongoing royalties.
The most well-known types of franchises are restaurants or retailers, such as McDonald’s or GNC, but with the right model, any type of business can be franchised.
Benefits of Franchising
So, why should you consider franchising your business? Here is a list of benefits your business can gain:
Shared financial risk
When you expand the number of your business locations with franchising, you share the financial risk with a partner. Conversely, this partner will also share the drive to make the franchise financially successful.
Passive growth
Regular royalty payments from franchisees create a steady and predictable revenue stream.
Expansion with lower investment
Expand the name of your business while providing a franchisee with an opportunity for growth. With their investment and your business model, you can expand exponentially without putting more of your funds forward.
Greater brand awareness
Multiple franchise locations increase brand visibility and understanding, which can attract more customers and potential franchisees.
Signs Your Business is Ready to Franchise
At this point, if you’re still unsure if you should franchise your small business, there are a few telltale signs. Here are the top 4 indicators that your business could grow and thrive as a franchise.Proven and profitable
Robust, accurate, and organized books are the key to proving your business is profitable and successful enough to consider franchising.
Strong identity and demand
Are you having trouble keeping up with customer demand? Are your phones ringing off the hooks with referrals? A strong identity and demand are ideal starting points for expanding to franchises with multiple locations to serve more customers.
Robust operating procedures
When your operating procedures are clearly defined and work, they’re much easier to copy and paste into other establishments. For good measure, your operating procedures should show success over the long term before you decide to scale into franchising.
Capability and funds
When businesses take off and start being more profitable than ever before, it’s time to decide how to reinvest those funds back into the business. If your small business has the bandwidth, capability, and funds to scale into franchising, that’s a good sign you’re ready.
When to Consider Franchising
Now, the question is – when should I consider franchising my business? If you’ve checked off the boxes above, now might be the answer. Otherwise, here are a few other ways to summarize when the time is right:
Consistent YOY profitability
This is highly enticing to franchisees who wish to experience the same success as your business year over year.
High demand for service
As we mentioned above, if your business is in demand by customers, franchising is the perfect time to capture the momentum.
Ready to let go
The most challenging part for any small business owner is being able (and happy) to let go of some control of their business. The most common time may be well ahead of retirement planning, so you can be set up to retire at the age you’d like to, with your business’ franchising to back you.
Franchising Challenges and Considerations
Speaking of challenges, franchising your business and maintaining franchises is a different ballgame than starting and running a small business. So, it helps to be aware of some unique factors beforehand so you can tackle them with success or consider them when deciding whether or not you should franchise your business.
First and foremost, it can be challenging to maintain quality and brand consistency across franchises or locations. This is where robust operational procedures come in handy, as do procedures to follow up and check in on your franchises.
The legal, regulatory, and accounting requirements can also differ from state to state or business to business. The best way to ensure you’re doing what’s best for your business is to bring in a bookkeeping partner at the start to set your business up correctly from the beginning.
Lastly, you’ll want to consider and compile all of the upfront costs involved in expanding into franchising and developing the systems that will help the franchise grow perpetually.
The Final Word: Achieving Franchise Success
Now that you know more about franchises and how to start one yourself, you better know whether your small business is franchise-suitable. Of course, every small business and situation is unique. So, evaluate yours in-depth with professionals to ensure you’ve done your due diligence in research and planning for franchise success.
What drives the success of any type of business? Its books. Partner with a franchise-specific bookkeeper to ensure your small business is financially ready to be franchised or that your franchise stays up to date with all the latest financials for insightful analytics.
Connect with Top 2 Bottom, franchisor’s favorite bookkeeping and payroll experts. Schedule a complimentary consultation now to get started.