How to Know if Franchising is Right for Your Business

The most qualified candidates for franchising are well-educated on the topic, have already successfully duplicated their business and are removed from the business operations.  In this recent interview with franchising expert, Carmen Chavez de Hesse, we uncover what business owners interested in franchising really need to know. Her company Echo Growth Strategies works with business to navigate the complicated process.

What’s do you believe is the most important question business owners should ask themselves to help them determine if a franchising model is suitable for their company?

Are they ready? To start, have they duplicated their business model in at least one, but preferably more locations with similar success to the flagship location? Secondly, have they duplicated themselves so they can be available to manage the essence of a brand new business: franchisor in addition to their corporate entities? Lastly, do they have the financial resources to franchise and access to additional funds to market the brand as a franchise and secure the first sale?

Why, from your experience, do you think this is the most helpful question. 

In my experience, entrepreneurs come to me and say they have received interest from several people to buy a location because they like their service offering and want to do what they do in their own city.  Knowing that other people want to do what you have done with great success is every entrepreneur’s dream and a huge milestone to measure success.  Until they meet with me, and I start asking about each prospect; are they an ideal candidate, financially qualified, and in conversation do you think they are open to following your systems?

Franchising is appealing as it affords the Franchisor the opportunity to scale a brand (often quickly) with another like-minded entrepreneur’s capital.  However, a huge misconception is that every franchise concept is an overnight success like Massage Envy was. It may take years (3-5 in fact) to start gaining traction in the industry, but this will also depend greatly on the financial capability of the Franchisor to position their brand for sale. 

Can your business be replicated easily?

This is a great question for anyone wanting to scale their business whether through franchising or not. And the best way to find out is to open a second location in a different area. Market research, of course, is key. You should consider replicating your client base, as much as, considering design and buildout specifications, any licensing requirements, and even random things such as how seasonality (winter/spring etc.) may affect your business in other areas of the county. Ask yourself are these considerations easily replicable?

It’s one thing to have the systems dialed in, but success should be measured by the numbers and profitability of another location.  In addition to testing your proof of concept, by opening another location before launching as a franchisor, you have the opportunity to document what this process would be like for future franchisees, all the while taking note of the timing to get open as well.  

With all that said, financial projections for your location, future corporate locations, and the franchise company are a must.

Do you have the right mindset to start a franchise?

One of the biggest misconceptions in franchising is that it’s easy and will provide residual income quickly and with litte effort. To have the right mindset to franchise, you have to duplicate you first, and conduct a GAP analysis of your support team.

When you become a franchisor, you are now CEO of two companies. The Franchise Company that receives income from franchise sales and royalties, and the corporate entity that will continue to grow and develop as the flagship location(s) for which all franchisees will model their business. 

How much money do I need for franchising?

It is estimated that a new franchisor will invest close to $250,000 to franchise their business model.  This is an important number to hold on to and not intended to scare you. It is possible to franchise your business for much less than half of that; BUT to get to your first sale, you will need substantial capital.  That’s what is necessary to prepare and to get the word out after you have officially launched as a franchisor.  The key before pulling the trigger is to invest in financial modeling of both a potential franchise location, as well as budgeting for the new Franchise company over the next 1-3 years.

What does “support” look like from you towards your new franchisees?

Franchising affords like minded entrepreneurs the ability to open a business using an already proven system. Their success or failure as a franchisee, in my opinion, will be highly dependent on their ability to follow your systems and receive coaching to that end. With that said, as a Franchisor, your success or failure will be highly dependent on the success or failure of your franchisee’s.

For more information about franchising, reach out to Carmen at Echo Growth Strategies.