Should you consider franchising your business

Paul Ryan | February 27, 2018

Franchising is thriving in Australia, with a recent report showing that franchising accounts for approximately 4% of small business in Australia with total annual sales revenue of $146B.

All kinds of businesses can and do go into franchising – from pet minding or grooming services and food and drink outlets to clothing stores, cleaning, gardening, and office services such as bookkeeping. If a business has an operating system that can be easily replicated, then it can be franchised.

Perks of franchising

Franchising can certainly be very rewarding. As a business owner, it can provide a way for you to expand and service many more clients, without a huge capital outlay. It can give you the chance to publicise your brand and provide you with a steady stream of income through royalties and franchise fees.

Through franchising, you may also be able to grow your business without needing to invest time, training and money in employees, only to risk losing them to a competitor! Unlike an employee, when someone becomes a franchisee, they have invested their own capital in the system. This means that it is in their interests to be committed to the business and highly motivated towards making it work. 

Franchising also affords franchisees the opportunity to run their own businesses, using an established system and a successful product, without having to do a lot of the hard yards that are usually required when starting a business from scratch.

Criteria for franchising

The business needs to be:

* Credible and successful – franchising will not ‘fix’ a struggling and failing business. If a business is not doing well, its problems should be sorted out before franchising is considered.  

* Repeatable and teachable – it needs to have documented systems and procedures in place that can be replicated over and over, and easy to teach and to learn. One thing you may have noticed when visiting franchised businesses is the consistency – every time you go to a franchised café for instance, you can expect the same consistency and quality in the coffee and other products you buy.

* Unique – even if a business provides a product or service that is familiar and common to most of us, it needs to have differentiated itself from the competition in some way. 

* Profitable – the franchise will need to provide adequate returns for franchisees. This should preferably be at least 15% after royalties and fees.

* Preferably established – not all businesses that franchise have been around a long time, but with so many small businesses failing within the first five years, ideally a business should have been running a few years before franchising.

The business owner should be:

* A good communicator and ‘people-person’ – franchising leads to new types of relationships that need to be well managed and nurtured. 

* A ‘balanced’ individual – franchisees are not employees, and as a franchisor, you need to be willing to pass off information and control to others. However, this should be done without being totally ‘hands off’, as you still need to establish standards and other requirements.

* Totally committed to the change – franchising tends to shift a business on its axis. You will no longer be just focused on your core product or service, but on marketing and selling franchises! 

* Committed to your franchisees – franchising involves providing ongoing support and training for franchisees, and you need to be committed to this long-term.

So, should you franchise your business?

If you are unable to say ‘yes’ to the above criteria, then franchising might not be for you yet. You might be better off at this stage concentrating on making your current business the best it can be. If you and your business do possess all the above qualities, and you are considering franchising, you should do so carefully. 

If you decide to go ahead, some of the issues to consider include:

* Franchisee fee structure – whether a regular set fee or a percentage of revenue for example, and the cost of purchase.

* Taking on suitable franchisees – people who are committed to the business, and who are keen and able to learn quickly.

* Territories/regions for franchisees.

* Legal issues – it’s important to obtain legal advice and to get franchise agreements drawn up by a franchise lawyer.

* How you will provide ongoing support, training, and development for franchisees.

* Compliance with the franchising Code of Conduct.

Franchising should only be entered into after a lot of consideration and investigation. While it is not suited to every business or every business owner, for those who do franchise successfully, the benefits can be enormous for the franchisor, the franchisees, and the customers who benefit from their services.