Three topics to look at before you franchise your business are Systems, Study, and Self. This article is intended to provide questions you can ask yourself on your journey of exploring turning your business into a franchise system.
What Systems Do You Have In Place?
A franchise, at its core, is a system that ties together to create a predictable result. Operating systems are why McDonald’s fries taste the same in Omaha, NE, as they do in Brooklyn, NY. It’s about the exact cooking time, the exact oil temperature, and the exact amount of salt. These precise, simple, and repeatable actions begin to form what is known as an operations manual.
There could be a system for greeting customers, a system for marketing, a system for performing a service. Before you franchise your business, ask yourself, does my business currently operate on systems, and if not, can I turn this business into a repeatable system that most people could perform?
We will be writing further articles on crafting an operations manual and what great systems look like.
Study Similiar Franchise Brands
Chances are there will be competitors or businesses with similar styles already in the franchise space. You want to study the competition and understand some characteristics to see how your business stacks up. Some might call this a competitive study or comparative market analysis. Start at a high level first and look at #1 and #2 below. If you check these two boxes, you can move on to other data such as the investment level, initial franchise fee, and royalty of these franchise brands. For assistance on conducting a competitive read How to Conduct a Competitive Study on Potential Franchise Competitors.
Here are some items you want to note from each competitor first to see if you’re ready to franchise your business.
#1 What is their reported Average Unit Volume (AUV)?
This is the first high-level financial indicator. If the average franchise in your segment has 1M in AUV and your location or average of locations does 500K this could be seen as a negative indicator. Conversely, if your location has a 2M AUV this could be seen as a positive indicator. Of course having a 2nd, 3rd or more locations would be a great validator that 1) the systems are repeatable and 2) There is no significant fluctuation from unit to unit.
Where can I see Franchise competitors AUV?
Starting on a competitor’s franchise development site is usually the best place to start. Many times, particularly in strong concepts, they advertise their AUV with an * that directs you to the FDD. An FDD is a franchise disclosure document. We will discuss more on that in a later article in this series.
If you want to review publicly available FDD’s, visit the State of Wisconsin Department of Financial Institutions website. For free access to FDD’s read Wisconsin FDD: The Best Resource for Locating Free Franchise Disclosure Documents.
#2 What sets you apart from these brands?
If you are “just another” cleaning company, fast food restaurant, or child daycare, you may need to evaluate your market position before deciding to franchise. Do you have a competitive advantage or something that will make you unique to the market? Will this uniqueness attract both franchisees (people who want to open a business under your brand) and customers within local markets throughout the United States or beyond?
Self: Are You Ready to Be a Franchisor?
Time
The third topic applies to you. Being a franchisor is one of the furthest things from a get-rich-quick plan. Franchising is a long game that starts slow, gains momentum, and then compounds over time. Getting your first ten units will be the toughest. If you do things right and have great systems and staff with great people, awarding and opening units 11-50 will be easier.
Money
When you truly dive into franchising, you may realize that the “franchise fee” is not a profit center and, in many ways, translates into the cost of finding, awarding, training, and supporting franchisees.
The question to then ask is, will the anticipated royalty stream be enough to support the operations of the franchise brand? Depending on the concept, it could take a lot of operating units to create a revenue stream that exceeds your monthly expenses.
Letting Go
Being a franchisor involves guiding a brand, its strategy, and the operations to produce a consistent product and experience. All this while having a unified image and message. Being a franchise does not mean you can select exactly who works at an individual location. It does not mean determining how much someone is paid or what vacation they are eligible for. While franchising uses brand guidelines and a formal operations manual, you do have less control of an individual location than you would as a company-owned unit. For some, the path to expansion is not franchising, while for others, it’s the perfect fit.
Visit our Franchise My Business Corner (FMB) for more resources.
