Want to Franchise Your Concept?
So your business is an established success in its local community. Customers love you, profits are steady, and you’re ready to expand your enterprise. But replicating that success in new locations is never guaranteed. FranBiz can help guide you past the hidden pitfalls of franchising your business.
Four Things People Want When Buying a Franchise
1. Is Your Business A Proven Concept?
One has to build a working model over a specific period of time to be able to offer a PROVEN concept. Too often, people rush to market with a product or idea that has never been tested over an adequate period of time in the marketplace. They are just so convinced that their concept is great, they want to move forward and bring others into business with them.
Your idea may appear to be sound, but will the public buy it? Will they buy enough of it, and often enough, to sustain a business model over many years?
2. Is Your Brand Name or Trademark Regionally Recognizable?
Owning the only company franchise in a large region is rarely an advantage. Opportunities such as brand name recognition, co-operative advertising and volume purchasing power allow franchisees to piggyback on one another’s profiles and success in the marketplace. Ongoing corporate support is usually more robust in regions where they have multiple franchise outlets.3. Can you Offer Co-Operative Purchase Benefits?
Inventory, advertising, equipment, and supplies all cost less when purchased by a group rather than just one franchise. This is why “clustering” stores in one locale is a sound practice, as opposed to being so spread out that co-operative projects cannot be undertaken. If you have ten stores in a 20-mile radius, Billboard advertising might make sense. But if you have only one or two stores, it’s probably not the most effective use of marketing funds.4. Is Your Concept Universally Intriguing?
Brands that have struggled have usually been invested in a singular product or technology.- Example: Singer Sewing Machines
- An obsolete industry cannot be franchised: Typewriter Sales & Repair
- Other franchises to avoid are ones that bear celebrity endorsements: Kenny Roger's Roasters
Funding Your Franchise Expansion
How much does it cost?- Cost can vary greatly depending on the concept and scope of the business.
- Regional, national, or worldwide franchise expansion becomes increasingly more expensive as the area in which you’re operating expands.
- In-house sales people vs. area development teams. For example, The FranBiz Group’s founders are intimately familiar with the Mail Boxes Etc® / The UPS Store® concept which committed early in its stages of expansion to growing the business through an Area Franchisee Network. Area Franchisees purchased the rights to recruit new franchisees in a specific geographic area, earning commissions in the process.
In addition, these same people were required to provide ongoing support to their franchisees, and would earn a royalty in doing so to be paid by the parent franchisor. These area developers were also required to build and operate a pilot center to be used as a model and training center in their areas. This type of structure would cost more to put in place than if a franchisor intended on selling individual stores—one at a time. But, in the long run, it could be worth the extra expense.
Where does the money come from to get the franchising process started?
Many franchise systems are funded solely by the individuals who have fostered the idea; personal savings, second mortgages or liquidation of other assets have all been used by individuals starting a franchise. There are also private lenders or investors or “angel investors” who, for significant interests in the company or other benefits, may consider funding the franchise when it is launched. Our principals in The FranBiz Group has decades of experience in this type of investment.
Common variety regional or national banks generally will not consider any kind of loan to help you get started unless you have equivalent assets for collateral that they can easily access in the event that your concept does not succeed as planned.
Governmental lenders such as the Small Business Association won’t usually consider funding a franchise or a newly-minted entrepreneur, but will often finance a franchisee or a franchise system that has been operating successfully for a reasonable period of time.
Professional Venture Capitalists (VCs) are most likely not going to consider investing in a start-up franchise system. VCs usually look for proven concepts that have been franchising for no less than three-to-four years and can boast numerous happy, successful franchisees.
A bare-bones attempt to become a Franchisor would cost a minimum of $50,000 just for the legal, accounting, and basic website production that is required to launch an enterprise. A more realistic figure would be upwards of $100,000, and this would be affected by whether or not you planned on utilizing Area Franchise Agreements, Master Franchise Agreements, Area Development Agreement or an Area Representative Marketing Agreement. FranBiz has extensive experience with all these varieties of agreements and a comprehensive knowledge of how they work.
If you have between $50,000-$100,000 of your own capital, or you know where you can raise this amount of money, you may be a candidate who is capable of starting your own franchise concept. The FranBiz Group stands ready to assist you in your endeavor, and we welcome the opportunity to personally discuss the concept of your business with you, as well as the many options for funding it. If you would like a personal consult with one of our franchising experts, click on the link below and provide your information.
If you do not have access to that kind of capital but believe your concept has the earmarks of a franchise-able concept, click on the following link to have one of our Fran-Financial Investor Relations counselors contact you for a personal consult.
Complete the short questionnaire below and receive a free consultation to help you decide if you should franchise your concept.
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