Learn the key indicators of a franchisable business and find out if you're ready to become a franchisor.
TAKEAWAYS:
- The franchise model can be a powerful tool for growth, but it isn’t right for everyone.
- Before franchising, it’s important to assess your business’s franchise readiness score and decide whether you’re ready to become a franchisor.
- By waiting until you’re ready to franchise your business, you can avoid wasting time and money by launching too soon or getting stuck in the franchise growth gap.
Franchising is an exciting concept – and for many entrepreneurs, it can be a great way to take a successful business to the national level.
But not every business is ready to franchise, and not every business owner is ready to become a franchisor. From unit economics to scalability, market conditions, capitalization, mindset and more, there’s a lot to consider before franchising your business. Because launching a franchise too soon can waste time and money – and even derail your business or leave you stuck in the franchise growth gap – it’s critical to assess your franchise readiness before taking the leap.
In this article, we’ll explore the key indicators of a franchisable business and discuss the steps business owners should take after deciding whether they’re ready to start a franchise.
Why is franchise readiness important?
Franchise readiness can predict your brand’s potential for long-term growth. Because launching a franchise system before you’re ready can create significant – and costly – barriers to success, including stalled growth and even business closures, it’s important to make sure you’re ready before entering the franchise space.
Questions to Ask Before Starting a Franchise
As an entrepreneur, choosing the right time to franchise your business can mean the difference between building a scalable brand or struggling to support your first franchisees. Because of that, it’s critical to evaluate your franchise readiness before jumping into the industry.
To determine if you’re ready to become a franchisor, ask yourself the following questions and assess your business’s franchise potential using the scoring models in the sections below.
1. Should you franchise your business?
As an aspiring franchisor, diving head-first into the franchise industry can be tempting, especially if your business has a track record of success. Still, it’s important to remember that franchising is different from owning a business – and just because a business is successful doesn’t always mean it’s franchisable.
To decide whether your business is ready to franchise, evaluate the following key indicators of franchisability:
- Unit economics. Is your business’s revenue robust enough to support franchisees while investing in growth? Is the potential return-on-investment for you and your future franchisees realistic?
- Replication. Is your business model replicable? Do you have systems and processes in place that can allow someone else to duplicate your products or services in different markets? If not, can you set up replicable systems?
- Differentiation. Evaluate your real estate, capitalization, supply chain operation and business model. Does your business have “three uniques” – that is, three reasons a candidate should choose your brand over a competitor right now?
- Demand signals. Do entrepreneurs inquire about franchising opportunities, or do customers ask if your business is part of a franchise?
- Brand. Intellectual property is the foundation of a franchise system. Is your brand name, logo and other IP registered and protected or trademarkable?
- Industry competition. Assess your brand’s opportunity profile, estimated initial investment and franchise competition in your market. Are there any market conditions that will give your brand space to grow?
Add one point for every readiness indicator you answered “yes” to above.
Scoring:
- 5-6 = Strong potential
- 3-4 = Borderline
- 0-2 = Not yet
Keep in mind that just because you can franchise your business, doesn’t necessarily mean you should. In the franchise space, growth is about more than just checking the right boxes – it’s about laying the right foundation and positioning your brand for success from day one.
If your score shows that your business is ready to franchise, move on to the next section to discover whether you’re ready to enter the franchise industry.
2. Are you ready to franchise your business?
Owning a franchisable business will only get you halfway to success in the franchise world. Instead, you also need to be prepared for the responsibilities that come with founding and growing a franchise system – including having the right mindset and laying the right foundation to support franchisees in a competitive industry.
To decide if you’re ready to become a franchisor, evaluate the following key indicators of franchise readiness:
- Systems. Do you have documented systems for training and supporting new franchisees? If not, do you have established systems in place that can be formalized in an operations manual?
- Founder mindset. Are you prepared to spend the next five years improving your franchise sales process, onboarding and supporting franchisees, networking and attending conferences like FranCamp?
- Capital runway. Do you have the budget to cover legal expenses and franchise registrations? Do you have enough capital to invest in your brand’s growth while supporting your initial franchisees?
- Early pipeline. Do you know where your first three to five franchisees will come from? Remember, your first buyers should be well capitalized and financially able to open at least two units – even if they’re only buying one.
- Sales infrastructure. Do you use a customer relationship management system to stay organized? Have you prepared compliance materials? Are you ready to roll up your sleeves and develop a franchise sales and discovery process – including a sales website and brand story?
Add one point for every readiness indicator you answered “yes” to above.
Scoring:
- 4-5 = Ready now
- 3 = Nearly ready
- 0-2 = Not ready
If you think you’re ready to franchise your business, contact us to schedule a franchise assessment. At GoodSpark, we can connect you with the tools and resources you need to franchise your business the right way – including franchise development, growth coaching, compliance training and more.
If you aren’t ready to franchise your business yet, don’t worry – there’s always tomorrow. In the meantime, focus on identifying gaps in your business model while improving profitability. Depending on your score, the preparation process for franchising your business may only require a 60- to 90-day sprint.
After you’ve implemented the necessary improvements, reevaluate your business for franchise readiness and reach out to us when you’re ready.
Summing It Up
Although franchising is a proven model for growing your business, it isn’t right for everyone. Franchising your business too soon can create serious obstacles to success, including wasted time and money, or getting stuck in the franchise growth gap.
When a franchisor enters the franchise space before they’re ready, it can also lead to more serious consequences, like business closures that can affect your bottom line. Because of that, it’s critical to decide whether your business is ready to franchise – and whether you’re ready to become a franchisor – before franchising your business.
By asking yourself important questions about your business’s franchisability and learning how to identify the key indicators for franchise readiness, you can ensure that your new franchise system is positioned for success from day one – and that you’re ready to hit the ground running as a franchisor.
Frequently Asked Questions
Before franchising, entrepreneurs should evaluate their business for unit economics, reproducible systems and processes, differentiation from competitors, franchise demand signals, a solid industry position and trademark protectability. Proper capitalization and the right infrastructure and capacity to support growth are also critical.
To prepare a business that is almost ready to franchise, a business owner can fill gaps during a 60- to 90-day sprint. If a business isn’t ready to franchise yet, focusing on improving profitability while finding pain points and filling gaps in their business model – then re-testing for franchisability later – can be helpful for preparing to franchise a business in the future.
If an entrepreneur is ready to franchise their business, they should schedule a franchise assessment with a reputable developer and select a franchise attorney to begin the legal preparation process for franchising. They should also start preparing for franchising by choosing the right corporate team and building a foundation that supports growth and scalability.
Not sure if you're ready to franchise? Our team can help! Click the button below to contact us.
About GoodSpark
Built to help franchisors bridge the franchise growth gap, GoodSpark is a franchise growth accelerator that equips founders, brands and leadership teams with the knowledge and tools they need to build high-performing franchise systems that scale, evolve and perform in the real world.