By Kay Ainsley, Managing Director, MSA Worldwide
As we look forward to 2019, many business owners are considering expanding their businesses using franchising as their business expansion strategy.
Franchising offers many benefits, including:
- Capital for expansion
- A Franchisee with a vested interest in the success of the business
- Local market knowledge
- The Franchisee is an independent businessperson and responsible for the ultimate performance of the business
- The Franchisee is responsible for complying with all laws and regulations regarding the operation of their business
- Builds brand awareness quickly
- Faster market penetration
- More efficient utilization of corporate resources
- Leverages purchasing power for the entire network
Legally, anyone can become a franchisor. All that is required to be able to offer a franchise is the preparation of documents in compliance with the FTC Rule and adherence to the additional legal and registration requirements of some states.
The more important question, however, is not can a business be franchised but, rather, should a business be franchised? To answer the question of whether a business should be franchised requires a careful examination of the concept, the economics of the business, the marketplace(s) in which the concept will be offered, and the business culture and temperament of the business management. Franchising should only be used if it is the most efficient means of reaching the objectives of the company.
Even if franchising is an effective means of meeting a company’s objectives, not all businesses are ready to franchise. The better prepared and positioned a company is to expand through franchising, the better the chance of establishing a solid network of franchisees and protecting the brand. Below are some criteria to consider if you are thinking about franchising your business.
- Consumer demand for the products – The product must have adequate consumer appeal to foster the anticipated network growth. If the product can be adapted to regional or targeted audiences, the overall appeal is widened.
- Recognizable brand name and registered trademark, or a trademark that can be registered – Having a registered trademark ensures that a franchisor will be able to protect their brand name from imitators as they build their franchise network.
- Business climate and regulatory requirements – The business must be able to be operated within regulatory requirements at the federal, state and local levels.
- Systemization of the business operations – The business must operate according to established policies and procedures that produce consistent results.
- Skill transfer – The franchisor must be able to train the franchisee and their staff to operate the business within a reasonable period of time and to achieve a consistent customer experience from business to business.
- Business economics and financial performance – Both the franchisor and the franchisee must be able to achieve an acceptable return on their investment. There must be reason to believe that the financial results will be sustainable in the long term.
- Franchisor culture, experience and management – The franchisor must have the willingness and ability to invest in developing an infrastructure and programs to support the franchise network. The franchisor must be able to foster the corporate culture necessary to manage a network of franchisees within the constraints of the franchise relationship.
- Marketability of the franchise – The franchise offering must be marketable against competitive franchise offerings, as well as other investment and career opportunities. The universe of potential franchisees must be of sufficient size to enable the franchisor to achieve reasonable growth goals.
These criteria can help a business determine whether they should franchise; they are a primary indication of whether the examination process should be taken to the next level. The next level includes a closer look at the system, the economics of the business, and the culture of the parent company; if these three elements are not in place and cannot be put in place, then it is unlikely that franchising is the correct method of distribution for the business.
Do you have further questions about franchising your business?
MSA can provide guidance on properly developing a successful and sustainable franchise system.