If you are considering franchising your business, you may wonder when the best time to do it is. If you decide to franchise too early, you may not have the correct foundations to allow your franchise to thrive. Alternatively, you risk losing opportunities if you wait too long to franchise your business.
There is no general answer for the best time each business should become a franchise. However, this article will explore some factors that will help you decide if it is the right time to franchise your business.
Making the decision to franchise your business can be difficult. This Franchisor Toolkit covers all the essential topics you need to know about franchising your business.
This Toolkit also contains case studies from leading franchisors including leading Australian franchises including Just Cuts, FlipOut and Fibonacci Coffee.
Is There Demand for Your Business’ Goods and Services?
Franchising is a great way to expand your successful business. In a franchise system, you will provide other business owners with the right to operate a business using your company’s:
- intellectual property,
- processes and
- systems.
Further, franchisees will run the day-to-day operations of a store or branch while you receive a portion of the profits as the franchisor. Generally, this occurs by way of payment of royalties by the franchisees. In this sense, franchising your business can help keep up with consumer demand.
However, you should note that franchising is not necessarily the best option for all businesses. For instance, franchising may not benefit your business if you are not operating profitability. In addition, while franchising can expose you to a more significant target market, it also involves considerable costs. For this reason, it is essential to ensure your business sales are steady and there is already sufficient demand for your business’s goods and services.
Can Other People Buy Into My Business?
It might be a good sign that there is demand for your business’s goods and services if potential franchisees ask you:
- if you are accepting franchise applications;
- whether you could offer them a franchise; or
- if you will be franchising in the future.
Many business owners wish to explore franchise opportunities because they:
- do not have the capital in their company to fund opening a new branch; or
- have reached their capacity to oversee more branches or stores.
Do You Have Good Systems in Place?
Primarily, franchising involves replicating a successful business model. For this reason, business owners should have robust systems before starting a franchise. Notably, new franchisors will typically develop an operations manual for their franchise. This manual can help maintain the brand’s integrity by outlining the operations process you wish franchisees to follow.
However, if you have an inadequate operational system in place, this can lead to operational and financial deficiencies that could affect the success of your franchise. For this reason, it is a good idea to have an adequate operations system before initiating the franchising process.
Do You Have Sufficient Capital To Franchise?
Many business owners are under the impression that franchising their business is a ‘no-cost’ expansion strategy. Although franchising is a cost-effective expansion strategy long-term, you will need capital to initiate the franchising process. As a franchisor, you may accrue considerable fees regarding:
- drafting legal documents and manuals;
- investing in training franchisees; and
- marketing materials to aid your business expansion.
Furthermore, there are several ways for franchisors to recoup these initial expenses through fees and reimbursements. However, you will still need some capital to initiate the franchising process.
Have You Received Professional Advice?
You should seek professional advice before deciding when is the right time to franchise. This can involve getting expert franchise-specific advice from:
- an accountant;
- a lawyer; or
- a business adviser
Furthermore, engaging with a franchise lawyer can be particularly beneficial for you. In particular, a franchise lawyer can typically assist with:
- drafting the franchise agreement and disclosure document;
- filing applications to register any business names or logos as trademarks;
- preparing licence and distribution arrangements;
- preparing particularised documents for each new franchise grant; and
- advising on your obligations under the Franchising Code of Conduct.
Key Takeaways
In short, franchising is one way you can grow your successful business. However, before you decide to franchise your business, you should consider whether:
- there is consumer demand for your business’s goods and services;
- third parties show interest in buying into your business;
- you have an adequate operational system in place;
- you have sufficient capital to initiate the franchising process; and
- you have obtained professional advice from an accountant, lawyer or business adviser.
If you have questions about starting a franchise, our experienced franchising lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
An operational manual is essentially an instruction manual for franchisees on how to run the franchise business. An operational manual can ensure consistency across franchises and therefore maintain the integrity of your brand.
At its core, franchising requires a franchisor to assign certain rights to a franchisee, allowing them to market and distribute goods or services under the franchisor’s brand.
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