Do you want to start a franchise business? Are you looking for the rules for how you can become the next great franchise? How much does it cost? What are the benefits? And most importantly, how do I get my deal as a franchisee with this up-and-coming business ?
I’ve recently been involved in helping sell a very successful national franchise and have seen firsthand the many reasons why a franchise has grown to $10 million in sales across 600 locations across the country.
Last year, I also worked on the other end, helping two business owners find the necessary funding and expertise to start their journey to becoming the next franchise.
These two experiences helped me deepen my understanding of the five sacred rules that distinguish great franchise opportunities. If you’re considering turning your business into a franchise, I have them here.
I’m going to share a few tips about how to pick the right franchise for you so you can make it happen.
Rule #1: Make your partners profitable.
The first rule sounds simple, but it’s often overshadowed by the economic pressures you start to feel when preparing your financial projections. First, your concept must make your franchisees profitable. The more, the better.
A unique and exciting concept can help attract attention and sell a franchise, but the business processes and procedures in operations and marketing must make your future business franchise financially successful.
The more successful they are, the more successful your franchise will be. Many of your other challenges will become smaller if you continue to follow this rule.
Rule #2: Have a great answer to the question, “What have you done for me lately?”
Creating lasting value is critical to a successful franchise relationship. Once you train your franchisees and help them build their businesses, the franchisor’s contribution to their future success will diminish over time, at least in concept.
Are your recipes unique and always changing? Is your scheduling system making your franchisees more efficient and profitable? Are your marketing processes effective and cost-effective? Is your budgeting software critical to profitable projects? Will your real estate department help you find the perfect location? These and other questions are what franchisees will ask.
While a strong franchise agreement will protect the franchisor, the goal is to build win-win relationships and keep innovating to make your business, services, marketing, and products better.
Rule #3: Quit or hire.
Remember, you’re working on a brand new business that you have no experience with franchising. You’re no longer running your own business and training others how to do the same; you’re the CEO of a successful national franchise that you want to be.
I’ve seen many companies fail and end up in the legal system because they never made a full commitment to the franchise. Hiring a franchise development company to create marketing and sales documents and prepare your federal disclosure documents is enough to help you sell several franchisees. However, if you want to become a franchise owner, you must support your early partners and ensure their success.
If you decide to build a franchise system around your successful business, it’s like starting a second business. Selling your product or service to customers still takes a lot of time and effort, but now you must also find time to build your franchise infrastructure and market and sell your best new franchise opportunities. You appear to be running two separate businesses, and without the right partner, demand can become overwhelming.
Keeping your current full-time job as president of your business and then working for your start-up franchise rarely works. Advisors won’t cut it either. Commit to either quitting your job as president or hiring someone to run the franchise business, but realize that you may not be successful at both jobs at the same time.
Rule #4: Raise capital.
There are two reasons for this divine requirement. First, it’s a good reality-checking and screening mechanism. When you start talking to others, whether friends, clients or especially franchise consultants, you’ll only hear positive feedback. If you want to hear the truth, ask for a check.
Advisors will tell you that the idea is sure to work because they have a hammer and you are the nail. Friends want to support you, and praise and encouragement are always easier than providing constructive feedback. Your customers already love your service, so they’re not the best people to provide feedback on the viability of national expansion.
” Preparing a formal business plan for transforming your company into a franchise is a very enlightening exercise as it will help you to crystallize your ideas. Once done, use this document to raise funds, and you are sure there needs to be a fair chance of success. If you can’t raise capital, listen to what the market is telling you. It’s not that your business is bad, it’s that it may not be ready for national expansion. “
Second, you will need the funds raised to help with marketing, sales, franchise support, registering in states that need it, and hiring someone to help run your old or new business.
Rule #5: You must have a great selling process (selling is service and vice-versa).
You must have a process to sell your franchise to someone you don’t know. 95% of clients tell you they are interested in becoming a franchisee and they will never write you a check.
Even if all of them did, it wouldn’t be enough to create a viable business. You need to sell to people you don’t know. Successful sales are a natural consequence of a successful process. If you want a good example of an automated process, you can visit Process Peak.
Remember, your initial franchisees will be early adopters and risk-takers. They will be franchisees because they like the underlying opportunities, and they are more likely to sell based on concepts and opportunities. However, when you update your FDD, you will need to list your current franchisees (with contact information).
Whether you like it or not, these people will be a key part of your sales process. The key to your long-term success is how happy you make those early franchisees, and if you cut corners to save money or because you don’t have the idea to commit to a franchise business, their negative comments on potential franchisees will hurt future sales.
Keep in mind that franchising is a heavily regulated industry. It should be familiar with that process and the steps you need to take to protect your system as you sell franchises.
Becoming the next great insurance franchise is a worthy goal, but there are many challenges along the way. Make sure you have done all your research and identified potential partners who are truly invested in your future success.
Franchising can be a great way to start a franchise business and make your dreams of owning a company come true. However, it is not the right choice for every entrepreneur.
That said, if you’re one of the folks with an entrepreneurial bent who would like to set up shop as part of a larger brand, The Franchise Report has compiled five unbreakable rules for you to follow if you wish to have success with your franchise startup venture.