Determining if it’s a good idea to turn your small business into a franchise.
McDonald’s, Subway, Domino’s Pizza. Believe it or not, these giants of the franchising world started off as one-store, small businesses owned by people just like you. Franchising can help expand your business and propel it to a whole new level, but for every Curves Gym or 7-Eleven, there have been thousands of unsuccessful franchises. If you want to franchise your business, be aware that the small business franchise process takes intensive research and preparation as well as a significant amount of money to be successful in the sea of large franchises that are available to consumers and franchisees.
First things first, you will need to evaluate whether franchising is right for your small business. If you want to quickly expand your business on a large scale, franchising may be the way to go. However, if you only want to expand your business in a handful of new markets, consider opening satellite owner-operated offices instead. It’s tough to justify the high cost of franchising your business for limited expansion.
Also, be sure your business is franchisable. To be franchisable, you should have a concept with pizazz that excites potential franchisees (i.e., a patented technology for removing car dents or a new type of quick-serve restaurant). Businesses that thrive as franchises offer their customers something new that they won’t get elsewhere. Also, since one of the main appeals of a franchise is that a customer can walk in and get the same quality of service and product that they would get at any other franchise location, you must be able to provide the highest level of quality control. It’s not just your business model or products that will attract franchisees, it’s your brand and the reputation and buzz that precedes it. The more unique your brand is, the more it can be authentically recreated in a new location.
It’s very difficult to franchise without a large amount of working capital, and many small businesses turn to bank loans to cover the expenses. If your small business is in a position to franchise, you’re probably doing well financially, but that won’t guarantee your ability to get a loan for the full amount you’ll need.
Here are some of the expenses you can expect to incur when creating a workable franchise system for you small business:
- Paying an attorney to prepare the required Uniform Franchise Operating Circular (UFOC) and register your franchise.
- Hiring a certified professional accountant to prepare audited financial statements for your business.
- Advertising and creating marketing materials to recruit prospective franchise owners.
- Hiring and training staff and creating training manuals to help train new franchisees.
Altogether, you are looking at what is easily upwards of $250,000 in costs.
Since so many franchise expansions fail, most traditional banks consider it a risky investment and are hesitant to provide small business franchise funding. You may have better luck obtaining the working capital necessary to turn your small business into a franchise from alternate financing solutions. There are plenty of solutions on the market, so weigh all of your options, including business cash advances and non-traditional loans.
By AmeriMerchant http://www.amerimerchant.com Posted on December 19, 2012