Franchise Your Business

If your business is unsuccessful you probably do not want to franchise it.  I know this sounds obvious, but in our experience, it is not!  Some business owners do try to take an existing unsuccessful business and franchise a variation of it (which, they assume, of course, would be successful).  Your business also needs to be successful in a franchise format with franchise fees.

Let’s say you spent $150,000, including working capital, to open your business. You didn’t exactly shoe-string, but were able to pick up some perfectly good used fixtures, did your own painting, and had a family member that was willing to work for slightly less than going wage until you broke even. Now your business is doing great, $750,000 in revenue and $100,000 profit. Now factor in any extra money that a franchisee will have to pay to build the business, the extra working capital that you will require, the franchise fee, and a royalty, and, suddenly the $100,000 profit turns to $40,000 profit.

So, you should be looking closely at your costs and revenue. If you had to pay a 5% royalty (on gross revenue) each month, would your business still be successful?  What if you had to pay a $500 a month technology fee and spend $1,000 each month in advertising expenses?  Would you still be profitable?  These are the types of extra fees that you might charge franchisees using your same business model.

Your business must be established before you can franchise it.  Otherwise you are just franchising an idea.  Before you decide to franchise, you’ll want to make sure that your business has gone through enough experience to give you a good idea of whether it can be successful over the long term (both before and after you adjust for franchise related fees).  Your business should have experienced seasonal changes (like whether ice cream sells as well in Colorado during the winter months) as well as maturation changes (like whether your business is still successful after it is no longer the shiny new brand in town). Your business should also be established enough so that you are not running the day to day operations (how will you have time to continue to run the business and the franchise company?).

While there is no magic number for when a business is “established” enough to franchise, you should be operating the business for a minimum of one year before you consider franchising.

Is your business successful because of its unique location?  Is your business successful because of an individual’s unique talents (i.e. chef) and persona (i.e. DJ)?  If the success of the business is dependent on a unique variable that can’t be reproduced, it may not be franchisable.  Your business must have systems and procedures that allow third parties to produce identical products or services regardless of who is operating it.

If your business is missing one of these elements, you may want to wait until you have met all three.  In the meantime, consider working towards this goal by possibly opening additional locations and improving your systems and procedures.