Should I Franchise My Business
By Geoffrey Stebbins

A number of methods are available when a business is looking to expand. The business owner, seeing he has maximized his profitability using his existing method of operation, seeks his available options. His first and most obvious choice is to increase his product lines, as we currently see with some pizza companies adding buffalo wings to their menu. A second option to expand could be to increase the marketing area which can be accomplished through additional target advertising and/or direct mail. Yet another way for expansion is to open branch offices in other regions. A problem of branch offices even under the best management is the lack of central company control, but even more importantly, branch offices often lack the motivation of the original corporate office. The singular, highest motivator in any branch is if that branch is under private ownership. This is an essential criteria for franchising. A business owner who is thinking of expanding his business through franchising may wish to address the following questions.

1) You believe your business is suitable to franchise. In actuality, what businesses are the most suitable to franchise?

a. Any business

b. Any retail business

c. Any business that is easily duplicated

d. Only businesses that are unique and offer a fresh marketing plan.

2) Your business is ready to expand and you're thinking about franchising. List the 3 most important preparations you need to make, before you can began to franchise, in order of importance.

a. Complete a feasibility study

b. Investigate competitive type businesses

c. Do a business plan

d. Incorporate as a franchise

e. Create a name

3) Rank the most important support services you will be required to provide to your franchisees.

a. Training program

b. Store staffing

c. Ongoing support

d. Manuals

e. Hiring and firing duties

f. Accounting and legal advise

4) How much experience does the franchisor need to have in the field which he wishes to franchise?

a. Does not need a company store

b. Needs a company store open for at least 1 year

c. Needs company store for at least 3 years

d. Should have at least 3 company stores and 5 years in business

5) How much capital do you need to develop your business into a franchise?

a. $10,000

b. $40,000

c. $80,000

d. $120,000

6) List, in order of importance, the requirements other than money that you should expect before you franchise.

a. Time

b. Market analysis to determine locations

c. Development of super-structure

d. Contract with vendors

e. Understanding of franchising concept

7) Which future staff position(s) are most important to keep your franchise successful after the initial development?

a. Operations and training manager

b. Franchise sales team

c. In-house attorney

d. Advertising and marketing manager

8) The cost of advertising to maintain the rate of opening up one franchise every other month during the first year of franchising is approximately:

a. $500/month

b. $1000/month

c. $2000/month

9) Rank, in order of potential, which of these four businesses will have the greatest success in franchising.

a. Food

b. Automotive

c. Business Services

d. Retail

10) How much net profit should you be prepared to make out of a $15,000 franchise fee?

a. $10,000

b. $7,500

c. $5,000

d. less than $1000

ANSWERS:

1) C-Any business that is easily duplicated or cloned is most suitable to franchise, whether it's retail or business to business service. The businesses least suitable to franchising are those which are so unique or require the skill of a specific individual that cloning becomes very difficult, but not impossible.

2) A-Feasibility study is most important to see the marketability of the product or service in other areas and the necessary demographics that would support a franchise business. The second most important requirement is C-Business plan which would include B-Investigation of competitive type businesses. Incorporating as a franchise or choosing a name is not important as part of the preparations prior to developing a franchise and will only become requirements after the development.

3) A-Training Program and C-Ongoing support are two of the most important things you are required to provide the franchisees. D- Manuals will become necessary at the time in growth where the franchisor cannot be relied upon to hand hold the franchisee on an ongoing basis due to the number of franchises he has opened. However B-Store staffing and E-Hiring and firing of staff is usually not required by the franchisor and the franchisee should never rely on F-Accounting and legal services of the franchisor even if he provides it.

4) D-At least 3 company stores and 5 years in business is the best answer as he is offering as his part of the partnership expertise and certainly this expertise is all the greater with multiple stores and many years in business. However, all the other answers A, B, and C, to different degrees could answer the question as it is possible to have just a concept and franchise that concept into a real business, even though this is not the recommended course.

5) It can cost between B or C-$40,000-$80,000 to develop a successful business into a franchise. However, a business working under a tight budget could conceivably reduce its cash expenditures down to A-$10,000 and with D-$120,000, the franchisor would certainly have enough money to promote and market the business in order to get a fast start.

6) The 3 most important requirements for a business owner to start franchising would be to invest A-Time, C-Develop a super-structure, as well as having a complete E-Understanding of the franchise concept. B-Market analysis is not necessary to start a franchise and could be done after the franchise sale and before the franchise is open. D-Contracts with vendors is an ongoing function for the franchisor and is not an initial requirement to start franchising.

7) Development of a B-Franchise sales team is by far the most important consideration in developing the franchise. Closely followed is having an effective A-Operations and training manager. C-In-house attorney and D-Advertising and marketing director are not of great significance and could be sub-contracted when needed.

8) A Franchisor should expect to spend in proportion to his desired rate of growth. However, if he wishes to open up 6 franchises in his first year, he should expect to spent C-$2000 per month in advertising. The same $2000 per month budget the second year of operation should produce more then 6 franchises.

9) All Equal. The type of business is not the criteria for the success of the business but more so the suitability of the person running that business. The management and support system of the franchisor is the second most critical element in determining success of the franchise.

10) D-Less then $1000. A franchisor should not necessarily expect to make a profit out of a sale of a franchise. His profits will come from the royalty stream. After payment of advertising, sales commissions, and other franchise sales and administrative expenses, there is usually very little left for the franchisor out of the franchise fee.

CONCLUSION:

Franchising still seems to be the most efficient and fastest way to bring product or service to market. It combines the expertise of the franchisor with the motivation of private ownership of the franchisee. Oh, Remember, there is no such thing as perfection and with any system, there will be advantages and disadvantages and I caution you there may be some disadvantages in franchising for you and your wife. However, you only asked about the advantages, which certainly normally do out weigh any of the disadvantages. The advantages include, 1) being provided with a tried and proven game plan (you don't have to re-invent the wheel), 2) the franchisor should be able to provide you with a high level of expertise, due to his experience (you'll be in business for yourself, but not by yourself), 3) you may be able to take advantage of the size of the system, in such matters as joint advertising, group purchasing, a recognizable name, etc., and 4) the equity you have in the franchise normally appreciates at a far higher rate than non-franchise businesses and your resale value is normally much higher.