Natalia Shvarts, Director in Beyond Corporate’s commercial team, answers what makes a business franchisable.
Franchising is one of the options available to a business that is looking to expand. By definition therefore, franchising is not suitable for an entrepreneur who has an idea or concept but rather is a consideration for an established business that has been proven to be successful.
Franchising may not be a feasible option for every business. For a business to be suitable to be franchised the business must satisfy the following criteria:
- It must be profitable – this means that not only must the business itself be profitable but it must generate enough profit for there to be a profit for the franchisee and the franchisor. If the profit margin is too low, then it is unlikely to be an attractive proposition for potential franchisees.
- Market demand – there must be a demand in the market for the products or services that the business provides. If the business is only satisfying a temporary need which is likely to be short-lived then it is unlikely to be franchisable as franchising is a long-term strategy.
- Scalable – can the business be easily replicated by training others to operate it or does it depend on you as the founder or does it require very specialist skills or training? If the business requires extensive training or very specific qualifications, then your pool of potential franchisees may be limited.
- Unique Selling Point – the business must have something special about it to set it apart from its competitors and to make it attractive to potential franchisees and customers.
If your business satisfies the above criteria, then that would be an indication that the business may be franchisable but it does not necessarily mean that you should pursue franchising as a method for expanding your business. Choosing franchising as an expansion method means making a long-term commitment. That commitment will be both financial and contractual and will require investment of time, money and resources.
Franchising means essentially “packaging up” your business into a ready offering – this, as a minimum, requires an operating manual, a training programme, ongoing support infrastructure as well as the infrastructure for ongoing monitoring to ensure compliance with the system and performance criteria. This may require very different skills from the skills that you would previously have needed to run your business, meaning that you may need to expand your own team since managing franchisees is very different from managing employees.
Unlike employees who are being paid for the time they give to you, franchisees invest their own money and will want to understand exactly what they are getting in return. It is therefore vital to ensure that expectations are set appropriately and are aligned throughout. As a franchisor you need to be very clear about what forms part of the package and what does not, what is included and what is extra, what you will be delivering to your franchisees and what will they be expected to source themselves and the parameters within which you expect your franchisees to operate. To be able to deliver such clarity you would first need to define it for yourself. For example – mapping out territories – there are different ways to map a territory but it is essential to do this right in order to avoid future disputes or disagreements. Whilst some of this will be about your business and how it is operated, some of it will be about building the franchise proposition, which may be something that you are unfamiliar with. If that is indeed the case, then you should seek assistance from professionals experienced in franchising who can advise you on and assist you with building your franchise proposition and the steps you would need to take.
The franchise industry as a whole continues to thrive and franchising can be a very profitable and rewarding way to expand your business. The key to doing so successfully is not only for your business to satisfy the basic criteria of being franchisable but for you as the founder or owner to understand what franchising involves and doing it in the right way and at the right time. If your business is going through a major restructure or a period of fast growth or if your available cash is tied up elsewhere, then it may not be the right time for you to start your franchise journey. However, if you have a stable and successful business, you have available resources and you are committed to pursuing franchising as a long term strategy then it can certainly be and should be considered as an option for your business.