If business is booming, you might be wondering what your next step should be. Should you open another branch? Register the business in another state? All of these options require significant startup capital and commitment—think new location, new staff to hire and train, possibly new vendors—all of which can seriously impact your time and your finances. What if there was a way to take advantage of the benefits of expansion while enjoying the freedom of using someone else’s investment?
Despite the economic downturn, in the wake of the Small Business Jobs and Credit Act of 2010, franchisers are cautiously optimistic for 2011. If you haven’t yet considered franchising your business, take a look at some of the franchising pros and cons below. Franchising isn’t for every business—we hope the information below helps you determine if it’s a solution for yours.
There are lots of good reasons to franchise many small businesses.
- Get started right out of the gate.
It takes time to set up a new business or location—and even more so when you’re already devoting so much of it to an existing business. When you hire a franchisee to own and operate your business, they’ll benefit from having a successful business to model themselves after, and you’ll benefit from an earlier open date.
- Little financial risk.
Your franchisee will pay you a fee in return for use of your company name and both initial and ongoing training. That franchisee also puts up the startup capital. If they fail, while it may affect your reputation, their failure will not significantly affect your bottom line (compared with simply opening another branch under your own control).
- Quality control.
It might be counter-intuitive to see quality control in the Pros instead of the Cons—how will you ensure that your franchisees are running your business with the same high quality you would? But consider this: you’re not just hiring a manager. Employees come and go, but business owners, including franchisees, have invested far more into the success of the business. They have nearly as much invested in the business as you do.
When you consider their financial, time, and emotional investments in your business, it’s clear that if you hire the right people, you’ll be in a much better position to provide your customers with high-quality services than if you were the sole person in charge. You can’t be everywhere at once, but through your team of franchise owners, you can provide the same excellent service everywhere at once.
There are, of course, great reasons to keep certain businesses under your own control.
- It’s not for everyone.
A franchise, from the customer’s perspective, should carry all of the same procedures and services that the original does and should go about offering those services in the same way. (The Nachos Bell Grande down the street from me should be the same Nachos Bell Grande that you might enjoy.) For this to happen, you need to be able to provide extremely detailed instructions about all aspects of business to your franchisee. Is your business something that can be taught? Will your franchises be able to replicate what you do at your original place of business? And if they can—will you be filling a niche in your new location just as you were in your original location?
- Rules and regulations may vary.
If you’ve expanded across state borders, it’s important to make sure those detailed instructions you wrote—your operations manual—are compliant with the laws of your new state. We strongly urge you to consult with your lawyer. (Do-it-yourselfers, I’m looking at you—if you find it difficult to leave some things to the professionals and feel like you’re relinquishing control when you do, there’s no better time to get used to the idea. Keep reminding yourself that your business has expanded beyond your immediate reach—that’s why you want to franchise!)
- The proof is in the proof.
Your franchise owners need to be confident in your business and your concept—confident enough to bear the full brunt of the financial commitment of opening a franchise. The best way to convince others of the soundness of your business is to first operate a successful business yourself. Don’t rely solely on an idea to do your convincing for you. Seeing is believing, and demonstrating your business’s ability to be successful is the best way to inspire others to invest in the idea.
- Ongoing training.
It’s your responsibility to provide ongoing training to your franchisee and their staff. (Of course, this isn’t really a con, since it’s also a great opportunity for you to monitor get to know the people in your extended family, so to speak.)
You have many options when you wish to expand—you could file a DBA, or expand into a new state with a foreign corporation. Franchising is just one of the possibilities, and it’s important to weigh all of your options so that you can determine the best move for you and your specific situation.