When to Franchise Your Business – 7 Questions to Ask
State Bar Certified Specialist, Franchise & Distribution Law
by Tal Grinblat
818.907.3284
When to franchise, or not to franchise. . .that is the question many business owners routinely ask themselves. There are certain guidelines and considerations companies can assess in deciding whether or not it’s time to franchise. Here are some considerations:
If you’re content with the size of your business, your income, the positioning of your brand in the marketplace, the breadth of work involved in maintaining your business…then perhaps franchising is not for you.
But if you want to grow your business and look forward to having new challenges to overcome, one very effective way to do so (with the added benefit of using other people’s money) is through franchising.
In deciding when to franchise, you should consider these questions:
1. Are You Profitable? Will Your Franchise be Profitable for Others?
This may seem like a no-brainer, but you’re not going to find people who want to buy into a struggling business model. And if you’re thinking franchising your business will actually turn diminishing profit margins around, it won’t.
You’ll need to take a look at why you are profitable and whether or not your income depends on fads, or solid products and services which can be turned into sustainable profits for years to come. Franchised concepts that do not make a profit for their owners will not survive long, and may also lead to litigation.
2. What is Your Business Model? Will You Attract a Large Pool of Franchisees?
If entering the franchise will be too cost-prohibitive for potential licensees, you may not get many buyers. Franchising a new cleaning company for example, could be affordable to many people looking to break into business ownership. Franchising space travel launching pads would only be feasible for certain billionaires.
3. Why Franchise Your Business? What are you offering that’s new?
You should consider your company’s unique traits that make you different and better than your competitors. If you’re not sure you have any unique traits that differentiate you from others, it may not be the right time or business to franchise.
4. Is Your Concept Replicable?
If your franchise concept is too dependent on your special qualities and traits which other franchisees may have difficulty replicating, franchising may not be for you. For example, a magician with unique skills and abilities may have difficulty franchising his magic concept if others cannot replicate these unique abilities.
5. Are You a Good Leader?
Are you prepared to offer support and training, and how much of it are you willing to provide? Many people who buy franchises are looking for guidance as they break into business ownership. But if you find it difficult to relinquish control, provide ample hand-holding for others, or are compelled to micromanage every last detail, selling franchises may not be an option for you.
6. How Will You Grow Geographically?
Imagine moving your business model from Los Angeles (or wherever your original store is headquartered) to Riverside. Will it still do well? Now try imagining it in Boise or Miami. If you think your concept will still draw customers and be profitable in many geographies, your business might make a good franchise. However, if your concept is geographically dependent, like a windsurfing training camp, your market area for franchising may be more limited.
7. What is the Regulatory Climate for your Business?
You should also consider specific regulations for your business. Are there certain states or geographies where your franchise will not succeed? Will you need special permissions in local, county or state governments for your business? You’ll need to do plenty of due diligence before launching into franchise agreements.
When to franchise is always a tough question for business owners wanting to expand operations. Hopefully some of the questions above can help you start thinking about your available options.
Tal Grinblat is a California State Bar Certified Specialist in Franchise and Distribution Law. He can be reached via email: tgrinblat@lewitthackman.com.