Should I Franchise My Business
Best Method of Market Expansion
What Is The Best Method For Expansion of My Successful Business?
Should I Open Another Location?
In order to open another location, you must be confident the new one will be a carbon copy of your existing successful example. And, you must be prepared to spread your talent and time a little thinly. But, you could probably manage to spend every other day at each place in order to maintain the same high quality product or service to which you are accustomed.
On the other hand, you might find you need a full time manager at the new location, to hire, train and supervise new employees, handle daily complaints and problems, and generally manage the business. (That is why they are referred to as “General Managers”). That means you will need to train such a manager to run it like you would if you were there full time. Naturally, you need to also train a few new employees at the same time. Perhaps you could train them at your existing location and wait to open the new one when they are ready. That means you must pay additional wages, which would put a definite burden on your operating capital. (Actually, an “additional” burden, because you have already had to borrow against your existing business for the capital to lease premises and to build-out and equip the new business).
Should I Set Up a Partnership?
With the right partner, the capital requirements are a lesser burden. But the partner is not likely to know much about the business operations, even though helpful in overall management decisions.
There are other considerations. Partnerships have a bad history of problems about control and division of labor, not to mention division of expenses and income. Even with good legal counsel and a great agreement, partnerships are notoriously bad arrangements. Some compare it with marriage. But others say that is a very generous comparison. At any rate, serious questions must be answered.
Should I Franchise My Business?
Expansion requires capital for leases, construction, equipment and operations. This capital comes from savings, profits from the existing business, bank loans, investment by partner(s), or a combination of these sources.
On the other hand, the capital can come from a third party; an entrepreneur much like you, that wants to invest in expanding your business concept, while enriching himself and investing in his own future.
Such a person is willing to pay tens of thousands of dollars up front just for the right to use your business name, system and methods, in order to run the business. He will also spend money for the leasing of a facility and for furnishing and equipping the premises and for any and all additional expenses in opening and operating the business. If you want to franchise your business, your franchisee will also hire, train and supervise all the employees, pay the operating expenses, clean the floors and deal with all the employee and customer complaints and problems. And, by the way, the franchisee will pay for his own training and is willing to pay you a percentage of his profits for as long as you allow him be your franchisee.
What Problems Will There Be If I Decide I Should Franchise My Business?
Whether you franchise your business, open a new location on your own, or find an investor to partner with, you will be faced with many common problems. The following are some of the specific problems that many attribute to franchising, and which are commonly cited as reasons not to franchise a business:
Cost of analysis to determine the feasibility of duplicating your existing business model. What? Does anyone expect that opening a new location on your own does not require that same kind of analysis? Why would you expand by any means without determining whether your exact business model will function adequately in a new market area? The analysis on viability of expansion is exactly the same. If you don’t think it is, you should not open a new location at all, by franchise or otherwise. The real decision is whether you should expand the business by any means whatsoever. Is it feasible to open a new location in another market area? If so, then you can consider whether or not you should franchise your business.
Cost of Attorney to set up a separate legal entity for the franchising operations. This deserves another “What?” Franchising will require forming one more entity. But, if you open your own new locations, each one of them requires a separate entity. How many locations do you intend to have ? 5? 15? 500? Better that each franchisee establish its own entity, at its own cost.
Cost of Franchise Consultant and Attorney to set up franchise system and to produce the federal and state documents required to franchise your business, primarily including: Uniform Franchise Disclosure Documents; Franchising Agreements; State Registration Documents; and Operation Manuals. While this is not an expense required to open your own new locations, it is not nearly as expensive as most would insist. Most pundits act as if the entire expense of a full-blown and fully registered franchise system must be expended immediately upon deciding to franchise your business. Not true. For instance, there are 31 non-registration states where operations can be fully initiated, with the assistance of The Franchise Company, for a total fee of $19,250. This amount includes the fee for experienced and professional legal counsel and will assure you of full consulting assistance through your first franchise sale. Receipt of your first Initial Franchise Fee will more than recover those expenses.
There is no need to spring into action on a national basis. You should grow your franchise system in the same manner as you would grow your own personal ownership of new locations. Sell one franchise, in one new market area. Then, when you have shaken out the bugs of opening a new site, and the new franchisee is comfortably operating in the right direction, consider whether you want to sell more, or whether you really want to continue franchising. In other words, don’t outgrow your ability to service new locations. True in all business expansion; not just in franchising.
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