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Should You Franchise Your Business?

You have a great business idea, and you've started your own successful business. What's the next step? Business owners are asking themselves the question: should I franchise my business? You should put considerable amounts of time and energy into analysing how franchiseable your business is before taking the leap. However, we've listed several criteria you should definitely consider before becoming a franchisor.

  •  Substantial Return on Investment: You need to make sure your financials are strong before franchising your business even becomes a consideration. You will need a minimum of 15% ROI to consider making your business a franchise. For example, if you made an initial investment of $100k, you would need at least $15,000 in profits a couple of years into the operation. Don't forget to also consider that franchisees often pay a percentage of their profits to the franchisor, so the 15% will be harder for them to achieve.
  • A Tried and Tested Business Model: You will need more than just a significant ROI in your business to consider franchising. It is important to test the concept at several locations before franchising. We would recommend testing at least three different locations with varying markets (and different employees, customers, demographics, etc). That way, you have a greater chance of offering a franchise that can be successful across the board, not just in your case.
  • A Working Operational Model: Successful businesses generally have a working model in place that outlines how to run the business. It is important to have your working operational model written down so it can easily be taught and replicated by franchisees. This includes the way your business conducts marketing, recruiting, and training as well as operations, purchasing inventory and finances.
  • Capital to Invest: Growing a business takes money, and so does franchising your business. While it requires less capital than expanding your business in other ways, you will still need money to launch and maintain your franchise. This includes money to advertise your franchise opportunity, legal fees, necessary software, marketing budget and staff to provide franchisees with support.
  • A Long-Term Plan for Growth: Since franchise agreements generally span about 10 years, you need to be committed to sticking it out with your franchisees, for better or for worse. There may be some disagreements in a franchisor and franchisee's relationship, but if you want to franchise your business, you need to make sure you keep the communication lines open whilst providing effective management. Commitment to these relationship is an important aspect to consider when franchising your business.

Before franchising your business, you should make sure that you can meet all of the criteria we listed above. But keep in mind that franchising is not the best way to grow every business. You should definitely get a professional opinion before determining whether or not your business is franchiseable. Check out Franchise Direct's directory of Franchise Consultants for experts to contact.

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