Franchising is a great way to grow your business from a small operation to a multi-branch network. However, franchising can be challenging. As such, you should carefully evaluate whether your small business is ready to be franchised before making the leap. This article will explore the key questions to determine whether you should franchise your small business.
1. Can Your Business Be Easily Replicated?
Your business’ replicability is one of the first points to consider when deciding whether to franchise your small business.
The key concept of franchising is that franchisees acquire the right to your business model, systems and processes. This includes access to your brand and operations. As such, your business operations must be replicable.
A business with a niche concept that only appeals to limited demographics, or requires personal and specialised knowledge, is unlikely to make a successful franchise system.
2. Is Your Business Financially Sound?
Your small business should be financially sound before being franchised. No one will be interested in a franchise opportunity if it does not have a demonstrated profit-making ability. As a result, prospective franchisees are unlikely to be interested in a business without a track record of success.
Your business should have several years of solid growth behind you. However, you should also have a clear plan for sustainable growth. This will require you to develop a detailed business plan and have clear financial projections for the next several years.
A small business that is well-positioned to franchise requires growth to meet customer demand.
Continue reading this article below the form3. Do You Have the Capital and Time?
As with many business ventures, franchising requires investing capital and time. Some of the costs associated with franchising include:
- legal fees for advice and preparation of the necessary franchising documents;
- fees related to consulting other professionals, such as accountants and franchise consultants;
- trade mark registration; and
- development of marketing materials.
You may also need to hire additional personnel before you sell the first few franchises.
It is also essential to consider the time required to focus on franchising your business. You will need to mentally shift from working “in” your business to working “on” your business. Ideally, someone else will manage the day-to-day operations of your existing business so that you can work on marketing and training materials to attract prospective franchisees.
The time and costs associated with franchising often act as a barrier for entry businesses, particularly smaller ones with few resources than their larger competitors.
This publication provides you with the fundamentals for franchising your New Zealand business, including set up, branding and management.
4. Do You Have Substantial Experience?
The value that a franchisor adds to their franchise network is their experience in the particular business or industry, so franchisees can go to you when they need advice and support. This makes it essential to have the knowledge and skills that come with years of operating a business.
Furthermore, you must consider whether you have these unique franchisor skill sets.
5. Do You Have a Solid Brand?
Having a successful franchise requires more than just a good business mindset. Instead, a franchise relies almost entirely on having a solid brand that will stand out from others in the market and products or services that are in demand. In addition, your brand must be identifiable to your consumers and have a good reputation.
A small business less well-known than its larger competitors is probably less identifiable. This might be unappealing to would-be franchisees looking to invest in a well-known brand or brand with significant goodwill.
Key Takeaways
You should consider various factors when deciding if your business is ready to be franchised. This can be more difficult to determine for smaller businesses that are lesser known in the market. Some key questions you can ask yourself when deciding whether to franchise your small business include the following:
- the replicability of your business;
- your business track record;
- whether you have sufficient capital and time to spend developing your franchise model and growing your franchise network;
- your experience; and
- the goodwill in your brand.
If you need assistance preparing your small business to franchise in New Zealand, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
The main concept of the franchising business model is that franchisees acquire the right to the franchisor’s business model, systems and processes. This includes access to the franchisor’s brand and operations. This means the business needs to be replicable in additional locations.
A franchise relies on brand awareness and significant goodwill. Your brand, products and services must be identifiable to your consumers and have a good reputation.
We appreciate your feedback – your submission has been successfully received.
