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How To Start A Franchise

What Will Developing a New Franchise System Cost?

Aside from the costs for utilizing professionals service providers, the total financial investment and steps required to properly launch and fund a new franchise model can vary considerably from industry to industry.

This makes it extremely difficult for me to quote you a specific cost estimate. Typically, the amount of investment that is required to adequately fund a launch will be in close ratio to the differences that you would find in funding the original business when compared to other businesses.

My point being, is that it is more affordable to fund an original business that is service based, requires little capital investment or equipment, is operated in a minimal space requirement and with limited staff than say a 400-seat restaurant that requires substantial real estate, equipment, furnishing and personnel to establish and operate.

While some of the steps and costs that are incurred to start a franchise based on a large business are the same as those to start a franchise based on a small, more limited size business, many of the additional costs will be based on the complexity of the original business.
How To Start A Franchise How To Start A Franchise How To Start A Franchise
For that reason, it is important to obtain a clear understanding of the costs that are expected for developing your specific business into a proper franchise model. This can generally be accomplished by seeking professional development services or using the guidance of an experienced franchise attorney with a strong business background that can also guide you through the business portions of the development process.
How To Start A Franchise How To Start A Franchise How To Start A Franchise

How To Start A FranchiseHow To Start A Franchise

How To Start A Franchise How To Start A Franchise How To Start A Franchise

Franchising A Business

Franchising A Business

With the company store doing well, and the desire to expand your business, you will likely consider self-expansion as your initial method for growth.

It only makes sense, as your managing and funding the growth of your business puts you in complete control, and makes you the primary benefactor of the value increases along the way.

Franchising A Business

Expanding on your own, however, has its dark side. First, you and you alone (or with secured or equity shared capital) will have to fund the entire costs of expansion. Depending on your business model, expanding by only a few units could amount to millions of dollars of new capital investment.

Further, expansion urges usually come at a time when owners are just beginning to feel the positive cash flow effects of their successful ventures, so facing the prospect of significant reinvestment and sacrifice cannot come at a worse time.

Aside from the capital expense, let us not disregard the challenges associated with recruiting, hiring, training and retaining high quality management and staff to operate the additional locations developed. Remember, in most cases, there is only one owner, and taking on any material expansion strategy of your own means that you are going to be faced with the senior management and operational aspects associated with each location. Your ability to hire and keep good employees will be critical to your self- expansion success and if doing so is outside your normal comfort zone, then it is recommended that you either defer this skill to another executive, or select an alternate expansion method.

With money and management discussed, there still remains a fairly daunting list of tasks and responsibilities facing the owner that chooses to expand independently. They include, site selection and real estate or lease negotiation and financing, general administration, public relations, advertising and crisis management. As each location is being developed and comes on- line, the time commitment and task list will grow accordingly for the owner.

As you can see, considering the money, time and risks, self-expansion is a significant achievement for any business owner. Franchising, by contrast, enables owners to leverage the capital and time resources of their franchise “owners” and thereby expand their brand while mitigating the total risks to their capital, their current business assets and their calendars.

 

Franchising A Business
Franchising A Business

Start Your Own Franchise

For Some Business Owners Franchising Is Too Large a Personal Sacrifice
One obvious choice for the future of your business is to make the choice to maintain your current business course and focus solely on your current existing business location(s). Although this may not be the right decision and it is openly the least dramatic, there are benefits to staying the course.
First, the cost and time commitment required in franchising a business can be excessive, with the costs totaling in excess of one hundred thousand dollars, and in some cases, taking over a year to complete. While there are certainly many methods available to cut costs and save time, by no means is the franchise development process an inexpensive, quick process to complete.
How To Start A Franchise
Secondly, becoming a Franchisor requires a significant shift in your current managerial functions. This means that you will no longer be the “owner-operator” of a private, local business. You will quickly transform your daily role into the role of the “the Franchisor”, which requires the use of an entirely new skill set and an abandonment of your current role in the business. While this can be a welcome change for many would-be Franchisors, many find themselves unprepared for the sudden role change and find it difficult to “let go” of their current business operations.
start your own franchise | start your own franchise | start your own franchise

Similarly, many owners are so vital to the success of their business that shifting their focus to the franchising process can prove threatening to the success of the original business location(s). New Franchisors must firmly believe that taking on a more “executive” approach to their business and focusing on the management of a large, geographically distributed group of Franchisees, is more appealing than the routine operating responsibilities of their current business. Once the commitment is made to franchise, you will be forced to either stay the course as “Franchisor” or hire an experienced executive to manage the growth of your franchise so you can return to the daily management of your original business.
Being an entrepreneur most of my life, I feel this point could be among the most significant factors for a business owner considering franchising. When I speak personally to each of my potential clients, I make it a point to visualize this aspect by asserting to them that they must be willing to “walk away” from their current way of doing business, and that they will largely no longer be materially involved in their business as they have been accustomed.
start your own franchise | start your own franchise | start your own franchise

Further, I ask each of them to imagine never returning to their store, restaurant or other business and greeting customers, vendors and employees again in the same way. I ask them to imagine their current location(s), one day becoming a franchise unit itself, which is often the case, and further assert their future as being limited to being a Franchisor. Not a pizza vendor, childcare service provider, dry cleaner operator or other business owner. Then I ask them again if they think franchising is right for them and their future happiness.

Start Your Own Franchise

Start Your Own Franchise

How To Start A Franchise System

How To Start A Franchise System

The temptation to prematurely or undeserving develop a franchise is largely caused by one flaw in thinking.

Put simply, that making money in franchising is just about selling franchises. When consulting my company’s prospects, I am quick to point out that selling franchises and the revenue received from the initial franchise fees is a zero-sum game.
In the end, the costs and responsibilities put on a Franchisor are extensive, and the franchise fees, although significant, generally only provide marginal profit to the Franchisor executing the start- up tasks and other requirements necessary to assist a new owner in the establishment of a franchise location.Ho Start A Franchise System | How To Start A Franchise System | How To Start A Franchise System | How To Start A Franchise System
Franchise profits, the kind of profits that make franchising a financial windfall for the owner(s), are derived from an annuity stream of on-going franchise royalty payments generated by your Franchisees’ success. There is simply no substitution for profitability in a franchise model. Without a long-term cash flow source, a Franchisor will quickly find they are short on capital following a hopeful franchise unit sales run-up. As with any business, franchises experience growth plateaus and maturity points, and franchises need constant royalty cash flow to survive and prosper. The failure of a franchise to provide its units with a quality product or service that is in high demand and will steadily generate royalties, will ultimately mean failure for a franchise network and the Franchisor.

So, if your business sounds more like the Catfish Purveyor, then it is likely franchising can provide you with the means to accomplish significant growth and substantial profits. On the other hand, if your business is new, unproven or now struggling, it is wise to develop an action plan and consider franchising at a later date, or consider another means for expanding your business.

 How To Start A Franchise System
How To Start A Franchise System

How To Franchise

Too Often Struggling Business Owners Consider Franchising Their Business

Unfortunately, the large majority of my initial calls with prospective Franchisors aren’t quite as exciting as the one described above. The fact is, we regularly receive calls from business owners that have no reason to consider franchising their business, and many start by immediately asserting the fact that their business is either, new, struggling, or not even opened yet, but that they think their current or future business will be the next great American franchise.
How To Franchise | How To Franchise | How To Franchise | How To Franchise

Because franchising is consistently reported as being such a hot industry, it tends to give the impression to would-be Franchisors that it is much, much simpler than it sounds to become a franchise powerhouse, and many equate the “build it and they will come” mentality with the franchise industry. It is quite concerning how many business owners and opportunists assume that any business can be easily franchised and replicated by the hundreds into successful units.

The most shocking are the prospects that call with an idea, a concept, or reference an industry that they think might be experiencing high growth and that they want to start both their fi location and the development of their franchise simultaneously. Some don’t have an interest in opening even one location, instead they take confi in their business wisdom to create a winning operational and competitive business conceptually, and expect Franchisees to come calling to buy their share of the magic. Imagine being a franchise prospect and being solicited for a franchise that has either no locations or only recently began in business.

The sad truth is there are numerous operators doing just that. And while, I am not suggesting that it is impossible to do this, particularly in established industries, it is more likely that unless the originating business owner is a superb business strategist, the model and the franchise will not flourish and will likely suffer from the same dangers that threaten all businesses.

Additionally, prematurely developed and occasional fraudulent franchise development has largely led to most of the current franchise legislation and regulations Franchisors are forced to navigate today.

 

How To Franchise

How To Franchise

Is Your Business Right for Franchising?

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