Founders on Reddit had questions about franchising – and we had answers for them.
TAKEAWAYS:
- Franchising is a proven business model that can help small businesses grow and scale nationally – so long as they're ready to franchise.
- As a successful entrepreneur, it’s important to do thorough research and know where to start before franchising your business.
- By separating myth from reality, you can put your new franchise brand on the path to success early on.
When you’re thinking about franchising your business, figuring out where to start can sometimes feel discouraging.
Although franchising is a powerful model for scaling, the franchise space is full of conflicting advice, myths and traps that can leave franchisors stuck in the franchise growth gap. Whether you’re deciding between starting a franchise or opening more locations, or wondering about the amount of money you’ll need to invest in your new franchise system, knowing how to avoid common franchising pitfalls can save you time and money as a new or emerging franchisor.
In this article, we’ll explore the top five questions founders have about franchising their businesses and discuss strategies for avoiding costly mistakes that can stall your brand’s growth.
Common Questions Founders Ask About Franchising
To find out which topics are most important to new and aspiring franchisors, GoodSpark turned to Reddit to see which questions founders asked the most. Below are the top five questions real entrepreneurs had about franchising their businesses – and avoiding missteps that might negatively impact their ability to scale in the future.
1. Should I franchise my business or keep opening more locations?
It’s not uncommon for aspiring franchisors to feel conflicted about opening new corporate locations or launching a franchise brand. To decide which option is best for you, assess your existing business first – and then decide where you want to end up in the future.
When deliberating between franchising and opening more corporate locations, consider the following questions:
- Assess your foundation. Can your business model, systems and processes be duplicated by franchisees? Is your business positioned competitively? Is your brand a leader in its industry?
- Evaluate your resources. Validation matters in franchising. Is your business profitable? Do you have enough capital to launch and market a franchise brand while supporting your franchisees? Will your future franchisees get a strong return on their investment?
- Check your energy. Selling franchises and supporting franchisees takes time and effort. Do you have enough time and energy to sell franchises and establish supportive relationships with franchisees over the long term?
Depending on your unit economics and brand positioning, you might not need to choose between franchising or opening new locations. Instead, you may be able to do both. If you think your business is ready to franchise, schedule a franchise assessment and contact a franchise attorney to begin the franchising process.
Take our quiz to find out if you’re ready to franchise your business.
2. Is $50,000 a reasonable cost to franchise my business?
The cost of franchising a business can vary. Although it might cost $50,000 to franchise one business, another business could cost significantly more. Because of that, it’s important to consider your brand’s individual goals when determining how much money to spend on franchising.
To decide what’s reasonable for your business, consider the following factors:
- Franchising documents. Certain documents are required to start a franchise, including the Franchise Disclosure Document (FDD), franchise agreement, operations manual, franchise registration applications and notices, and financial statements. The costs associated with those documents, including preparation, filing and legal fees, vary.
- Marketing and recruitment. To sell franchises, you will need to build a website to market your offering to prospective buyers. You’ll also need to invest in marketing, advertising and public relations to continue growing. Like other business expenses, those costs can vary.
- Growth strategy. It’s often best, and most affordable, for new franchisors to grow their brands organically during their first few years in business. However, advertising and marketing costs may vary depending on your growth plan.
Before franchising your business, make sure you have enough capital to support your goals. While it can be tempting to cut corners by purchasing all-in-one franchise development packages, discount services can sometimes harbor risks. Instead, consider working with qualified experts and experienced attorneys to assist you in your journey as a franchisor.
3. What should I know before hiring a franchise developer?
Although it’s not uncommon for franchise development firms to reach out to successful business owners about franchising opportunities, those offers aren’t always as good as they seem. As an aspiring franchisor, it’s important to be wary of franchise consultants who overpromise but under-deliver.
Before meeting with a franchise developer, make sure you’re prepared by considering the following:
- Do due diligence. If a franchise developer cold-calls your business about franchising, it could be a red flag – or it might not. To ensure a franchise development company is legitimate, do due diligence and validate their background, qualifications and track record in the industry.
- Don’t move too fast. Disreputable franchise developers sometimes push new franchisors to attend trade shows, buy digital ads or take other steps their brand isn’t ready for. To prevent missteps, be honest about where you are on your franchising journey and know which steps are appropriate for your business.
- Put in the work. Although some consultants might offer to handle everything for you, it’s important to remember that building a franchise system isn’t a passive process. Scaling a brand requires long-term commitment and direct involvement from the franchisor.
By doing due diligence and knowing which questions to ask before meeting with a franchise developer, you can avoid costly mistakes and focus on growing your business.
4. How can I maintain control of my brand while scaling?
As a successful business owner, you’re passionate about your brand, business model and customers. Because of that, it’s important to make sure your systems, products and services continue to meet your standards as your brand scales.
To maintain control over your brand while scaling, consider the following:
- Maintain your foundation. As a franchisor, your logo, intellectual property, systems, processes and brand standards can all be protected through legal channels and agreements with franchisees.
- Stay flexible. While there are some legal options available to protect your brand, franchisees still need enough freedom to succeed as business owners.
- Focus on balance. Remember, your franchisees aren’t your employees – they’re investors in your business who should be treated as partners.
By laying a strong legal foundation early on, you can protect your brand’s intellectual property, products and standards while staying flexible enough to support franchisees as your business scales.
5. Where should I start when it comes to franchising my business?
When it comes to franchising, knowing where to start is critical for the future growth and success of your brand. But as a successful business owner, it can be difficult to adopt the mindset of a franchisor – especially when you’re unfamiliar with the industry.
Before entering the franchise space, consider the following best practices:
- Do your research. Look up the pros and cons of franchising your business. Is your business ready to franchise? Is now the right time to launch a brand? Are you ready to become a franchisor?
- Ask for help. Seek the advice of at least two qualified franchise consultants – for the sake of comparison – and ask them to assess your business for franchisability and discuss next steps.
- Validate your finances. A franchise system is a new entity that exists separately from your existing business. Are you well capitalized and financially positioned to launch and grow a new brand while supporting the success of your first several franchisees?
- Learn about the industry. Take time to research your obligations as a future franchisor and learn about concepts including but not limited to royalties, territories and termination.
By learning the right steps to take before launching your franchise system, you can avoid common missteps and put your new brand on the path to success early on.
Summing It Up
Franchising is a proven business model that can propel a successful small business toward national growth under the right circumstances. However, it’s important to make sure your business is positioned for success and that you know the right steps to take before franchising.
As an aspiring franchisor, making sure your business is ready – and financially prepared – to franchise is critical. It’s also important to do due diligence before working with franchise consultants to avoid being taken advantage of in an unfamiliar industry. Additionally, laying a strong legal foundation for your franchise system can help you protect your brand standards and intellectual property as your business scales.
By following best practices, evaluating your existing business for franchisability and taking the time to research the industry before franchising your business, you can avoid common mistakes and position your brand for success.
Still have questions about franchising your business? Schedule a franchise assessment today.
