Want to Franchise Your Business? Ask Yourself These Four Important Questions

Ever had a customer say, “You really ought to franchise this idea?” That’s often how a business owner turns to franchising, according to Paul R. Segreto, President and CEO of FranchisEssentials, a consulting firm that specializes in marketing and development strategies for franchisors. Franchising allows companies to extend their brand and concept through the investment of franchisees.

But Segreto is quick to point out that not everyone is suited to starting a franchise. Here are some questions to help determine the franchisability of you and your business.

  • Do we have the capital?
    Segreto says 90 percent of independent business owners drastically underestimate how much they’re going to spend on the front end. Between registration fees, operations manuals, attorneys, and other costs, franchisors should plan to spend upwards of $100,000 to prepare a business for franchising. Thirteen states require registration under franchise disclosure laws in order for you to even offer a franchise option in that state, and the process can be expensive and time-consuming, so some new franchisors test the waters in no-registration-required states first.
  • Do we have replicable systems in place already?
    In order for your franchisees to offer similar experiences to customers in other parts of the country, you need to have clear systems in place when it comes to décor, customer interactions, marketing, and more. Inconsistencies erode the integrity of your brand and confuse customers. That’s why some third-party companies specialize in creating detailed operations manuals for franchisors.
  • Do I want to run my business or a franchise business?
    Just because you love being in the restaurant or retail business doesn’t mean you’ll love running a franchise business. “Being involved in the day-to-day operations of your own location and thinking you can operate a franchise company is a sad mistake,” says Segreto, who warns that franchisors need to be willing to delegate and understand that franchising will shift the nature of their business dramatically.
  • Am I willing to focus on relationships rather than innovation?
    True-blue entrepreneurs love innovating and risk-taking, but Segreto says these qualities are often ill-suited for franchising, which requires a clear structure and a focus on relationships. The ideal franchisor personality is someone who enjoys “building an enterprise and seeing it grow,” he adds. Successful franchisors also understand the interdependence of relationships between franchisors and franchisees, and they’re interested in nurturing those relationships rather than pushing the envelope.

About Susan Johnston

Susan Johnston is a freelance writer and blogger who specializes in writing about business and personal finance. Her articles have appeared in or on The Boston Globe, Dance Retailer News, GetCurrency.com, Mint.com, PARADE Magazine, WomenEntrepreneur.com, and other places.
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Shelly Sun
Shelly Sun

In addition to Paul's great advice, I also wanted to mention the importance of capitalization to the point of royalty self-sufficiency and not just launch. This is one of many considerations I write about in my book, "Grow Smart, Risk Less," which also details some of the Bright Ideas and Pitfalls to Avoid that I've encountered throughout my journey of building BrightStar Care. Great article!

Keith Greener
Keith Greener

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Jeff Fabian
Jeff Fabian

Good points. $100,000K is reasonable for certain types of franchise systems, but far over the top for others. As far as the franchise registration states, a good franchise lawyer who focuses on drafting compliant documents (and not earning fees responding to examiners' comment letters) can get the process done efficiently and for pretty minor additional legal fees. The application fees all totaled come in somewhere in the high four figures, I believe, but this should be a relatively modest investment for a franchisor with national aspirations. The legal fees really aren't as bad as people tend to think if you find the right firm.

Dan Durney, CFE
Dan Durney, CFE

Paul,Right on all counts! It's definitely a VERY different mindset - that of becoming a Franchisor - for which not every (in fact probably very few) Entrepreneurs is well suited. Our organization is pretty selective about who we help bring into the Franchising world and your observations and experience are extremely in this regard.