Should You Franchise Your Business?

If you want to expand, but lack the money, the people and the time, it may be time to think about franchising.
By Mark C. Siebert

Have a better mousetrap but scared to death that the world is actually beating a path to your door? Trouble sleeping at night wondering who will knock off your operation first? Certain that yours is the next Ray Kroc story, if only you could get the capital? Tired of reading about companies and thinking, "I have a better franchise concept than that company"?

Maybe you, too, should consider franchising.

Why Franchise?

In general, companies decide to begin franchising for one of three reasons: lack of money, people or time.

The primary barrier to expansion that today's entrepreneur faces is lack of capital. And franchising allows companies to expand without the risk of debt or the cost of equity. Since franchisees provide the initial investment at the unit level, franchising allows for expansion with minimal capital investment on the part of the franchisor. In addition, since it's the franchisee, and not the franchisor, who signs the lease and commits to various service contracts, franchising allows for expansion with virtually no contingent liability, thus greatly reducing a franchisor's risk.

The second barrier to expansion is finding and retaining good unit managers. All too often, a business owner spends months looking for and training a new manager only to see that manager leave-or worse yet, get hired away by a competitor.

Franchising allows entrepreneurs to overcome many of these problems by substituting a motivated franchisee for a unit manager. Interestingly enough, since the franchisee has both an investment in the unit and a stake in the profits, unit performance will often improve. And since a franchisor's income is based on the franchisee's gross sales-and not profitability-monitoring unit-level expenses becomes significantly less cumbersome.

Finally, opening another location takes time. Hunt for sites. Negotiate leases. Arrange for design and build-out. Secure financing. Hire and train staff. Purchase equipment and inventory. The end result is that the number of units you can open in any given period of time is limited by the amount of time it takes to do it properly.

For companies with too little time (or too little staff), franchising is often the fastest way to grow. That's because it's the franchisee who performs most of these growth tasks. The franchisor provides the guidance, of course, but the franchisee does the legwork. Thus franchising not only allows the franchisor financial leverage, but it allows him to leverage his resources as well.

Is Your Business "Franchisable"?
Franchising is a relatively flexible format, and just about any type of business can be franchised, provided it meets some basic characteristics:

• It needs to be credible. Does your company have experienced management? A track-record over time? Is the concept proven? Have you achieved good local press or public acclaim?
• It needs to be unique. Is your business adequately differentiated from its competitors? Is it marketable as a business opportunity? Does it have a sustainable competitive advantage?
• It needs to be teachable. Are the systems in place? Are operating procedures documented? Could someone learn to operate your business in three months or less?
• It needs to provide an adequate return. I don't mean just profitability. If a business can't generate a 15 to 20 percent return on investment after deducting a royalty (typically between 4 and 8 percent), it's going to have difficulty keeping franchisees happy.

If your business meets these criteria, then it may be a good candidate for franchising.
When a company makes a decision to franchise, it must first develop a sound plan for expansion. This plan must take into consideration the numerous issues confronting a new franchisor: speed of growth, territorial development, support services, staffing and fee structure, to name just a few of the most important issues. Larger companies need to address more complex issues such as channel conflict, anti-trust issues, and resource allocation. And obviously, your entire plan needs to be subjected to rigorous financial analysis and scrutiny to fine-tune your strategy for growth.

Once your plan is in place, you'll need the proper legal documentation. At a minimum, you'll need a franchise contract, an offering circular (as required under FTC Rule 436), and, depending on where franchises are being sold, state registrations. There are literally hundreds of different business issues that must be addressed in a good franchise agreement, and the decisions made regarding these issues will ultimately dictate your success as a franchisee.

Quality control for a new franchisor involves the development of highly developed systems. Generally, this translates into the development of an operations manual that must contain not only the systems used by the business, but also the checklists, policies, procedures and tactics that will allow these systems to be uniformly enforced. Moreover, operations manuals must be careful to avoid the creation of an agency and must also address issues that could create claims of negligence if you're to maintain an effective shield against consumer liability.

Finally, as a new franchisor, you must develop the ability to market and sell franchises. That requires knowledge of how to attract prospective buyers and the necessary materials (brochures, mini-brochures, videotapes, DVDs, and so on) that will help make the sale. Moreover, since the franchise sales process is highly regulated, you'll need to be educated in proper sales, disclosure and compliance techniques.

Every new franchisor quickly learns that when they turn to franchising, they've entered a completely different business. Regardless of how you make money as a franchisor, you'll have two roles: selling franchises and servicing franchisees. And of the two, ensuring the success of your franchisees is the most important.

Properly structured, franchising can allow small companies to more effectively compete with much larger competitors. It can also allow larger companies to gain the advantages of highly motivated unit management while reducing overhead. As such, franchising is an option that more and more companies should explore.

The key to success in franchising is successful franchisees. Without successful franchisees, no franchise system will last. But if you can put the interests of your franchisee first, those same franchisees might help you become the next McDonald's.

Top 10 Holiday Franchises – Small Businesses Made for the Season

Owning a franchise is a wonderful business opportunity that more and more individuals are taking advantage of each and every day. And, with all businesses there are certain times of the year that are more profitable than others. For the following 10 franchises the holiday season is one of the most profitable times of the year. Of course, more work is required to match the demand during the holiday season but the owners of the following franchises don’t mind because they will surely be in the black throughout the holidays.

The UPS StoreDuring the holiday season almost everyone buys gifts and greeting cards for their friends and loved ones. However, there are many individuals whose family and friends live in other parts of the country or even the world. For these individuals The UPS Store comes in very handy because it allows them to ship their gifts easily and with the UPS guarantee. There are other shipping methods individuals may choose, but The UPS Store is one of the best and its brand recognition brings in plenty of business. As a result, one of the best franchises to own during the holiday season is The UPS Store franchise because more mail and packages are shipped than at any other time during the year.

Dollar Stores by Allied SystemsAmericans like getting the most for their money and this is exactly what a Dollar Stores by Allied Systems franchise offers them. During the holiday season most people have more gifts to buy than their budget allows. But, the Dollar Stores franchise gives consumers the opportunity to buy all the items they need at a very affordable price. The holiday season is marked by a high shopping volume and many consumers choose to shop at Dollar Stores. As a result a Dollar Store franchise owner will find the holiday season to be the most successful time for the store.

Mrs. Fields CookiesThis franchise is successful during the holidays simply because it provides an outstanding product at an affordable price that is perfect for a holiday gift or to take to a holiday party. Few people have the time to bake these days, but that’s ok since Mrs. Fields bakes all day long and has fresh cookies, brownies, and cookie cakes available. Because so many people buy cookies during the holiday season as gifts or for a party a Mrs. Fields Cookies franchise is really successful during this time period.

Hollywood TansThe tanning industry is a big one that continues to grow each year. And, this industry finds that most of its business is done during the winter months and especially during the holiday season. The reason why tanning franchises like Hollywood Tans are so successful during the holiday season is for two reasons. First, the weather is not favorable to tanning outside and there are lots of holiday parties. Women and men alike want to look good during the holidays and a tan helps them do that. Because of this a Hollywood Tans franchise sees increased business during the holiday season and winter months.

GNCThe healthcare industry gets bigger each year with more and more individuals worrying about their health and their weight. GNC and other similar franchises have always been popular and increasingly so during the holidays. However, with each passing year they are becoming even more popular. Everyone knows they put on a few extra pounds during the holidays so they turn to GNC for supplements, weight loss pills, vitamins, and more to help them drop the holiday pounds and become healthy. There are some people who turn to GNC during the holidays for the sole fact that they don’t want to gain any weight and need supplements to help them. GNC products also make great holiday gifts. All of these reasons combined make a GNC franchise an outstanding business to own during the holidays.

The Wine LoftAll year long people go out on the town however during the holidays the amount of parties and socializing dramatically increases. There are all kinds of parties and the like held at various establishments and wine bars have become one of the most popular places to hold any kind of get together. Because of this The Wine Loft is an outstanding franchise to own during the holidays. This is because it allows for a classier setting for a holiday get together or party and all types of wines are available, which adds to the elegance. Of all the establishments offering holiday party space wine bars are becoming the most popular, so The Wine Loft franchise is a great holiday franchise.

Pet DepotThe pet industry is huge and especially popular during the holiday season. That is because so many individuals give and receive pets as holiday gifts. The amount of pets sold during the holiday season is significantly higher than during the rest of the year. This means that The Pet Depot is a wonderful holiday pet franchise because all types of pets are sold through the store and it’s a perfect place to buy a pet for the holidays.

Wireless GiantAnother popular holiday gift is a cell phone, especially for tweens and teenagers. Parents looking for the best plan and the best phone may feel overwhelmed by the many different wireless companies out there. However, The Wireless Giant makes buying a cell phone and finding the perfect plan easy because all carriers, plans, and cell phones are offered through this franchise. Since cell phones are one of the hottest holiday gifts The Wireless Giant franchise is one of the hottest holiday franchises.

Gold’s GymJanuary 1 is the typical day that everyone vows to get back in shape. And, lots of people are thinking about losing weight up to a month before while they are enjoying all the great holiday foods. Because of this lots of individuals give gym memberships as holiday gifts because they know a loved one either needs to get in shape or plans on getting in shape for the New Year. Also, plenty of individuals sign up for a gym membership so they are ready for the New Year and their new fitness routine. Since better health is on everyone’s mind during the holiday season Gold’s Gym health and fitness franchise is a profitable one during the holiday season.

BP ConnectBesides giving gifts what is one thing most individuals do during the holiday season? The answer is travel! Traveling by car is by far the most popular and since vehicles need gas to get anywhere a gas station is a great holiday franchise. One of the best franchises is BP Connect. The BP name is familiar and trustworthy and most travelers choose a familiar franchise over a name they don’t know. Since so many people travel during the holiday season and look for a familiar gas station to fill up a BP Connect franchise is a winning franchise during the holiday season.

For more information on franchises or to search for a franchise to purchase please visit www.franchisegator.com.