When to franchise a business is an important consideration for entrepreneurs. The life stage of the business could have a significant impact on the potential success of franchising. Here are six things to consider when deciding on the best time to franchise a business.
- The business should have a proven track record
While a start-up business could be exciting and promising, it’s best to wait for at least a year before considering franchising. This will give the entrepreneur time to build a solid track record to prove profit potential and sustainability prior to franchising. A proven track record will be important for funders and potential franchisees alike.
- There must be a pool of potential franchisees
While enquiries about franchising is encouraging and shows demand, these potential franchisees should show the ability to invest in a business. On the other hand, entrepreneurs should be wary of rushing into franchising because of franchisee enquiries. It is advisable to approach franchising with a solid business plan in place, preferably with professional assistance from a franchise consultant.
- The industry should be sustainable
The pandemic and the fallout created by it has shown us that many industries were more vulnerable than others to lockdown restrictions. Restaurants continue to take strain, but measures such as kerbside collection can alleviate the pressure. Other industries like industrial cleaning and courier services are thriving under these conditions. Before franchising your business, consider the long-term sustainability of your industry, not just in the current market but also when taking automation and other future trends into account.
- There should be room for growth of multiple outlets
Franchising works best when there is potential for multiple outlets, since the franchisor derives its income mainly from ongoing royalties (a percentage of the sales achieved by franchisees). If the market or the category is limited in terms of growth potential of the number of units, franchising may be too onerous and expensive.
- Head office must be financially stable and in a growth stage
Sustainable franchising needs a sustainable franchisor or head office. Franchisees will look to the franchisor for support, training and marketing and the head office should be able to deliver on these. While it is possible to grow the infrastructure to support franchisees over time as the network grows, it’s important that the franchisor is profitable and has adequate resources to support franchisees. It should also show growth in company owned outlets to prove that franchisees can expect growth in their own businesses.
- The business should own some of its own outlets
This goes hand in hand with financial sustainability. It is ideal for the head office to own at least one outlet, if not more. This provides the franchisor with additional income, promoting its sustainability. It also offers a testing ground for new products and methods.