How to Franchise Your Business
If you’ve created a successful business, you may have been asked, “Do you franchise?” or considered franchising as an attractive way to expand. In fact, franchising is projected this year to be a $757.2 billion industry, a 6.2 percent increase over 2017, that employs 8.1 million Americans, according to a 2018 study released by the International Franchise Association.
Franchising a one-shop operation is a model of expansion that removes some of the growing pains by having others invest in and spread your concept. But if you rush into franchising or make poor decisions, the mistakes can be costly.
Just having a unique or innovative business idea isn’t enough to be guaranteed success — you have to be able to package that model and hand it over to someone you trust.
“A lot of times an entrepreneur may start selling licenses or franchises before they really have systematized everything they need to in a clear-cut way so that someone can duplicate their success,” said Jeanne Seewald, an attorney and managing partner at Hahn Loeser & Parks LLP in Naples, Fla. “When you’re franchising, you’re actually handing someone a business in a box.”
Women who have launched franchise concepts offer been-around-the-block wisdom that could save future franchisers from some common mistakes.
To franchise, or not to franchise
Over 825,000 concepts are available for franchisees, with fast food enterprises being the most popular, according to the International Franchise Association. In fact, the 122,042 limited-service franchise restaurants counted in the most recent Economic Census made up 54 percent of all U.S. fast-food restaurants
But franchises go beyond fast food — a majority of private mail centers and diet and weight reduction centers are franchises, for example. The International Trade Administration states in its 2016 Franchising Market Report that most franchises come in the form of small- to medium-sized businesses.
If your goal is to raise capital, don’t franchise, said Leslie Kuban, a franchise expert who co-launched the Atlanta FranNet office, which assists entrepreneurs with their franchising endeavors. It’s an expensive process, it’s competitive and you must have “pretty deep pockets,” she warned.
That said, if your business has a successful track record, you think you can package it and trust your vision to another entrepreneur, then franchising might be the right path. Just be prepared for a lot of work and a shift in your new focus from owner of a single shop to franchiser, a company that owns multiple shops. In some cases, the franchiser operates the business while in others, the franchisee does.
From solo boutique to clothing chain
Dana Spinola founded fab’rik in Atlanta in 2002, wanting to pour hard work into her passion: clothing. With a community-driven business model providing high-style fashion at an affordable price point, along with services such as free shopping sprees for women facing hardship, Spinola soon had a thriving company and was turning down interested franchisees.
“To be honest, just opening one store seemed like a big feat at the time, so there wasn’t a big vision for this then,” she said.
Spinola, the company’s CEO, opened her second location in order to serve local demand, a way of testing the franchise waters recommended to her by legal and franchise experts as a tactic for those considering the idea of franchising.
“I got to experience that with two, you can’t be in two places at once.” Spinola said. “I had to put some operations manuals in place and get people I trusted.”
With the second location, she began to warm up to the idea of franchising. She thought, “I’m not going to be doing all this anyway. If I could find women with the similar kind of heart and mindset and business vision that I have, care for their community in the community that they’re in, then wow, I could expand this concept,” she said.
Eventually, her customers’ demand for locations in their own cities led her to create a franchise option as a way to grow without having to be away from her family while setting up new locations.
Spinola said she approached franchising the same way she approached her first store, in the gritty manner of reading nearly 100 business plan templates and adopting concepts that she felt fit her vision best. She learned about the necessary documents she would need, such as franchise agreements and franchise disclosures. After assembling a 30- to 40-page franchise agreement, she hired a franchise lawyer to make sure everything was in order.
Now, 35 franchises join her five company-owned stores, and she says 15 more franchises are in the works. The company’s operations manual is now hundreds of pages long and Spinola said it’s still growing as they create new processes.
Testing the franchise model
Clarissa Bradstock joined Any Lab Test Now, a direct access lab testing company, in 2007 when founder Dr. David Perlow saw the need to expand the business through franchising but needed someone to head that endeavor. Hiring Bradstock as the COO of franchising allowed him to continue his day-to-day operations since franchising is another business in itself.
Now CEO, Bradstock serves as chair for the Southeast Franchise Forum and as a member of the leadership committee for the Atlanta chapter of the IFA Women’s Franchise Network. She also still spends a lot of time traveling to meet face-to-face with franchisees around the country at the company’s more than 170 locations.
Bradstock said a major part of getting off the ground for her company was understanding the markets they could franchise in and the legal aspects of starting a franchise in the health care sector, given the complicated regulatory umbrella. Once the legalities were worked out, with the assistance of health care attorneys, they were able to formalize their processes in order to replicate them.
The Any Lab Test Now franchises began with the support of investors. With different health care regulations depending on the state, revisiting and revising were always going to be part of the process, she said.
“When you’re an emerging brand, even if you have a basis of operating units, it’s until you practice those processes over and over and over that, of course, it becomes a system,” Bradstock said. “I think that’s one of the biggest challenges: You don’t know what you don’t know until you get out there.”
How to franchise your business: key starting steps
Both Bradstock and Spinola approached the process with different resources and strategies. But before going any further with your plan to franchise, experts say it’s vital to examine whether you have the capital to do so.
Seewald and Kuban said that one of the biggest mistakes entrepreneurs new to franchising make is underestimating how costly franchising can be for the original business owner.
Seewald recommends working with an accountant who can help you understand the overall expenses, such as how many franchises you need to sell and what percentage you’ll retain from each franchise’s monthly sales.
A key factor, Kuban and Bradstock both said, is using legal and professional expertise. Some attorneys specialize in franchising, and some organizations focus on aiding franchisers, such as the IFA and subgroups like the Women’s Franchise Network. They also recommend finding other franchisers who can lend their advice and mentorship.
Franchising is a buyer’s market right now, said Kuban, who advises that your business needs to be truly special, with robust systems and marketing in place to support your franchisees.
Another key factor in franchise success is hiring a creative agency to keep the marketing materials, the website and other branding elements consistent as franchisees join, said Bradstock.
“That helped with the logo and the whole brand strategy,” she said. “As a franchiser, I think one of the biggest upfront costs is all of that marketing material.”
Need business funding? Learn more about small business loan options here.
How to choose a franchisee
Both Kuban and Seewald urge business owners to vet their potential franchise buyers.
“It’s really important to do your due diligence,” said Seewald.
For example, if somebody is a true entrepreneur who does not like working for someone else and wants to do their own thing, they might not be fit for franchising because the franchiser does maintain a lot of control.
“You really want to try to get to know that person and what’s important to them because that’s the real key is good franchisees,” Seewald said.
Spinola said her first franchisee found her, instead of the other way round. The franchisee brought a business background and a love of fashion.
“It felt like it was the right person. I trusted her, I understood her intentions, her love for the brand,” she said. “I really just felt like when that opportunity came, I’d said no so many times, I guess it just hadn’t been the right person.”
Even though fab’rik’s second location helped Spinola realize what she needed to do to support additional locations — and eventually franchises — she said the best test was to work with that first franchisee.
“I was super honest with her,” she said. “I was like, ‘We haven’t done this before, I’m going to really lean on you to help us create guardrails and guidelines and all the things that we need.’ So we created a really good relationship with our first franchisee.”
For Bradstock, choosing franchisees was all about credentials in the health care industry, including seeking physicians.
“We of course grew through that experience and learned that with the right systems, we could really open up the net and really look for good salespeople and business operators,” she said. “But it was really targeting people with some level of a health care background.”
Considering becoming a franchise owner? Check out “The Complete Guide to Buying a Franchise“.
Separating the operations
Another surprise to some franchisers is that when you venture into that model, it becomes a separate business, and you have to leave the daily operations of corporate stores to another qualified individual. Or, as the founder of Any Lab Test Now did, you can hire someone like Bradstock who can take over franchising your business.
Spinola likened the change in her daily operations to her four children and how they gradually changed her life from orderly to a little more unpredictable.
Although she thought she would be visiting the stores regularly and helping them sell, that wasn’t the case. Now, she focuses on visiting a few stores a month and connecting with the owners, the employees and even the customers. When she gets to visit franchises, she said it’s like seeing her kids all grown up.
“When the brand stands on its own, you get nervous,” she said, “and then you just get this incredible excitement like, ‘Wow, it’s a beautiful brand that’s not only me.’”