Turning your business into a franchise is a great way to expand it quickly. Owning a franchise system offers numerous benefits, including the ability to enjoy scalable growth and recurring revenue through a motivated network of franchise operators.
“You can run a franchise with about one-tenth of the manpower as it would [take] to manage multiple locations,” said Joey Osborne, founder and CEO of Mosquito Authority. “You have defined operations, procedures, rules and regulations. The franchise model makes sure operators adhere to [those rules].”
However, there are also some drawbacks and challenges to consider before you make the leap. Here are some pros and cons to consider if you're thinking of franchising your business:
Pro: You'll create a steady stream of royalty income from franchise fees.
With each new location that opens, a franchisor earns passive income in the form of royalty fees from their franchisees.
“A royalty stream continues for as long as the franchise operates, which is the key benefit for the franchisor,” said Tim Conn, co-founder and CEO of Image One.”
Pro: Franchisees may be more committed to growth and success than employees.
Franchising means you’ll work with entrepreneurial partners who have a greater vested interest in the success of the brand, said Kathleen Kuhn, president and CEO of HouseMaster.
“Because franchisees are business owners, their commitment to the quality and growth of the business is higher than you could find in an employee,” she added.
Pro: It's easier to ensure consistent growth with local ownership.
If you choose to open and operate new locations one by one, you may find yourself stretched too thin to properly oversee each store’s growth and progress. Individual franchise operators can devote that necessary time and attention to their own location(s).
“The original founder or owner can’t be everywhere at once,” Conn said. “Having franchisees who oversee the locations is a benefit because there is ownership at the local level.”
[Read: Thinking of Buying a Franchise? Here are the Pros and Cons]
Con: Franchising is a highly regulated industry.
Franchises are subject to strict regulations and industry oversight. Prospective franchise owners need to consider whether they’re ready for that level of commitment.
“The franchise rules established by the Federal Trade Commission must be followed, and a new franchise must develop a Franchise Disclosure Document (FDD),” Conn told CO—. “Additionally, depending on which states you plan on offering franchises, there are state requirements as well.”
Con: It takes a lot of time and money to create a franchise.
Setting up your business as a franchise can be both expensive and time-consuming. Because of the regulatory compliance and financial audits involved, you’ll want to invest in high-quality legal and financial professionals to help you on your journey.
“Good attorneys and accountants aren’t cheap, so make sure you do your homework and that you aren’t underfunded,” said Conn.
Con: Running a franchise is a different type of business.
As a franchisor, you’re no longer running a restaurant brand, a cleaning service or a fitness studio — you’re running a franchise business.
“The franchising industry and your current business industry are two totally separate industries,” said Kelsey Stuart, CEO of Bloomin’ Blinds. “Be prepared to enter a whole new world that has nothing to do with the business model you currently operate.”
To set yourself up for success, Stuart recommends becoming a student of the franchise competitors in your space.
“Study what they have done well and determine where you can create separation,” said Stuart.
It’s essential that you and your team start your journey into franchising with a strong foundation that is primed to grow.
Mike Robert, CEO, WaveMAX Laundry
Tips for successfully franchising your business
As you consider turning your business into a franchise system, here are a few important tips to keep you on the path to success.
Strengthen your brand from within first
According to Mike Roberts, CEO of WaveMAX Laundry, your original business is the standard to which all future franchise locations will be held. When you strengthen the brand within first, it elevates the quality of all the other franchises.
“It’s essential that you and your team start your journey into franchising with a strong foundation that is primed to grow,” Robert said. “Having a clear understanding of not only what makes you unique, but your industry position is vital when building out your support team and selling franchises.”
Build a strong franchise support team
Every successful franchise needs a knowledgeable team and system that can support its growth.
“You need to make sure you have a consistent system for each franchisee, so make sure your suppliers, vendors, software and website are ready to expand from Maine to Monterey,” Stuart said.
“There are many people who’ve been in the franchising industry for years, so allow them to take the lead as far as regulatory concerns,” added Roberts. “You should be solely focused on keeping your team honed in on your vision, culture and whatever else is at the core of your business, so that it’s strong enough to be stretched across markets.”
[Read: Buy a Business or Start From Scratch? Pros and Cons to Consider]
Seek out investors
Osborne learned the hard way that it’s better to have investor capital behind you before you start franchising your concept.
“Don’t try to bootstrap it,” he said. “Bring in an investor. If the idea is good enough that folks will eventually buy your franchise, it’s also good enough that investors will want to participate.”
Ask other franchisors for their advice
When you’re starting a new franchise, look to those who have done it before for their insight and to learn what they would have done differently.
“Meet with as many new and veteran franchises as you can,” Kuhn advised. “Read through other company’s FDDs and franchise agreements so you get a good idea of the support you will be required to provide.”
Be ready for a long-haul commitment
Franchising is a long-term commitment, so be prepared to stay the course, said Osborne.
“It can be a slow process,” he said. “Most franchise operations take eight to 10 years [to fully establish]. Stick with it.”
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
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