Looking for a way to scale your business without scaling your workload? As you conduct research and create business plans for future growth, you might consider franchising as a viable option. This article will guide you through the process of franchising your business, highlighting its advantages and providing a step-by-step framework to help you build a successful franchise network.
What is franchising?
Before getting into the details, it’s important to understand what franchising actually is. So here’s our definition: Franchising is when you allow other entities—or franchisees—to use your brand and business model in exchange for fees and royalties.
Options for franchising
There are four primary types of business franchises to consider.
Business-format franchising
This type of franchise involves providing franchisees with a comprehensive business system, including operations, marketing, and support. Examples include fast-food chains like McDonald’s and Subway.
Investment franchising
In investment franchising, the franchisee makes an investment to establish and operate a franchise location but hires a professional management team to run operations and is not personally involved in that aspect. A franchisee who opens or purchases several hotels or restaurants across a large area would fall into this category.
Distribution/product franchising
Distribution or product franchising focuses on the distribution of products under an established brand name. The franchisee acts as a distributor or reseller of the franchisor’s products. Examples include car dealerships and beverage distributors.
Job franchising
Job franchising involves providing franchisees with the opportunity to offer specialized services within a specific territory. Common industries that use job franchising include home repair services and cleaning companies.
Benefits of franchising your business
Like with any other growth strategy, there are both pros and cons to franchising your business. Here, we’ll focus on the advantages.
Sharing the burden of growth
By franchising, you can leverage the financial resources and entrepreneurial efforts of franchisees, allowing your business to expand quicker without bearing the financial burden alone.
More access to capital
Franchisees invest their own capital to establish franchise locations, providing a source of capital for your business growth that doesn’t solely rely on your own resources or external financing.
Big-picture focus
Franchisees handle the day-to-day operations of their individual locations, allowing you to focus on the overall strategic direction and expansion of your franchise network, rather than dealing with the operational details at each location.
Expanded brand awareness
With each new franchise location, your brand reaches new markets and audiences, increasing its visibility and awareness among consumers.
Lower risk of failure
Since the risks and responsibilities are shared with franchisees, the overall risk of failure is reduced compared to operating as a single business entity.
Potential disadvantages of franchising
Of course, it’s important to consider potential drawbacks as well.
Big initial investment and upfront work
Franchising your business takes a different knowledge and skill set than simply running your small business. You’ll have to invest in systems, training, and marketing to develop a model and attract franchisees, on top of the work you’re already doing to keep your business running.
Varying state regulations (if operating across state borders)
Don’t assume that the same permits (or lack of permits), for example, will work in every state. Some states have more rules and regulations to govern businesses, while others are more lenient. To avoid the risk of fines, you’ll need to have a good grasp of what the regulations are in each state you want to franchise in.
Lack of complete control over your brand
Although you can—and should—have legal agreements governing how franchisees use your brand, complete control is impossible when it comes to franchising. For example, your overall brand perception can unfortunately be impacted by a poor customer experience at one location.
Potential risk of legal disputes with franchisees
In an ideal world, your franchisees would be easy to engage with. Unfortunately, it’s not uncommon for conflict to arise over things like price increases and management decisions, and resolving these conflicts can be both costly and time consuming.
How to franchise a business
Now that we understand the advantages and disadvantages of franchising, let’s explore the steps involved in franchising a business.
1. Decide if franchising is right for you
Evaluate your business model’s scalability, profitability, and readiness for growth. Consider the initial capital you’ll need and your willingness to share control of your brand. If after all that, you’re still interested, maybe franchising is worth pursuing.
2. Protect your intellectual property
Before partnering with franchisees, ensure you have registered trademarks and patents to safeguard your intellectual property. A franchising attorney should be able to help you protect your business IP. If you don’t have legal protection for proprietary technology and brand assets, your franchisees may see an opportunity and try to capitalize on it as direct competitors instead of as collaborators.
3. Create a franchising agreement
To establish a successful franchise program, you need to develop legally vetted documents and a comprehensive franchising agreement. You’ll need to work with a franchising attorney for this to ensure compliance with all applicable state and federal laws—especially if you plan to expand to multiple states.
4. Build out an operations manual
Develop a detailed operations manual that includes every detail of information your new franchisees will need to be successful. You’ll want to cover launch procedures, employee training, marketing strategies, technical support, and crisis response plans. This manual should provide consistency and maintain the integrity of your brand across all franchise locations.
5. Develop a marketing plan
Creating a robust marketing plan is crucial for attracting potential franchisees. Develop marketing tools such as a professional website, informative brochures, a compelling brand story, and a solid, scaleable sales strategy. Additionally, provide franchisees with a marketing kit and guidelines to effectively promote the business to their local customer base. It’s also important to clearly define guardrails to allow for a little bit of creative freedom while adhering to brand standards.
6. Form your franchise company
Establishing a separate legal entity for your franchise company is important to protect your existing business and simplify financial reporting. This new entity will solely focus on franchising activities and ensure clear separation between franchisor and franchisee responsibilities.
7. Start recruiting franchisees
Use your marketing and sales plans to actively recruit potential franchisees. Showcase the unique value proposition of your business, highlight the benefits of joining your franchise network, and emphasize the support and training you’ll provide. Build relationships with interested individuals and evaluate their qualifications to ensure they align with your vision and values.
Franchising your business can be a highly effective strategy for scaling and expanding your brand. By following the steps outlined above, you can decide if franchising is the right strategy for you and create a network of franchisees. Remember to weigh the advantages and disadvantages, conduct thorough research, and seek professional guidance throughout the process. With careful planning and execution, franchising can help your business reach new heights.
Get the funds you need to franchise your business with a Bluevine Line of Credit.
