Franchising Your Business
by Ed Teixeira
An existing company with one or two company‑owned operations can gain
significant benefits by franchising their operation. However, the first
step is to evaluate your company as a franchise as objectively as
possible. The franchising landscape is strewn with the remnants of
potential franchise operators who thought they had a sure-fire winner,
only to be proven wrong. The biggest mistake one can make is to pay for
the costs of franchise documents before the preliminary steps are taken.
I have been approached by countless franchise start-ups who proceeded
to have a franchise agreement drawn up at considerable cost before being
aware of what it takes to start-up a franchise operation and sell
Franchise success stories are testament to the power of franchising and
virtually every successful franchise organization from “Subway” to “Curves
for Women” started from a small operation.
The first step in the process begins with a basic understanding of
franchising and the key items to be considered.
Franchising can provide:
- More rapid growth and brand recognition
- Organizational and network stability
- Franchisor can operate with fewer staff vs. corporate operations
- Increased purchasing power for the entire network
- Security of local ownership
- More consistent earnings flow
- Synergy from owner‑operators
- Well‑managed corporate locations are more profitable vs. franchise
- More difficult to remove a franchisee.
- Legal costs of franchising can be high.
- Corporate staff will require certain changes to adapt to franchise
Requirements for Franchise Implementation
The Franchise Business
The business that will operate as a franchise must have certain unique
attributes that will appeal to prospective franchisees. There must be
certain characteristics of your business that are not readily duplicated
and will allow for marketing the products or services as well as to market
the franchise opportunity. If the business concept of the franchise is
lacking, then there will be barriers to success
Ability to Package the System
There must be the capability to duplicate the successful elements of
the operation. A key benefit of franchising is the ability of a franchisee
to acquire a business with processes or practices which when followed by
the franchisee will typically lead to success. Note, I say typically,
because there is no guarantee that the franchisees will be successful,
however, the risk of failure should be far less with the franchise
operation. Regardless of whether the product is food or services, the
business which is being converted to a franchise must have the capability
of being set into a system.
Successful Financial Model
The financial model must benefit both franchisor and its franchisees.
Any franchise program which unfavorably provides one party a significant
financial advantage over the other is usually doomed for failure. The best
way to assure that this will not happen is to have a pilot or prototype
operation which would operate exactly like a franchise. This operation
could either be an existing corporately owned location or it could be a
new location that is opened up and operated just like a franchise.
Required Capital for Implementation and Growth
A new franchisor will need working capital to meet the legal expenses
and staffing requirements to commence a franchise program. No one should
go into franchising with the intent that they will simply convert one to
two locations to a franchise and not have requirements beyond that point.
It's very important that you have a budget of consulting and legal costs,
organizational staff such as franchise sales staff and advertising to
solicit franchise prospects. You will also need to be prepared for the
fact that as you open franchise locations there will be a time lag before
they will be generating financial revenue or income to you as the
Commitment to Franchising
There must be a true commitment to franchising as the business format
for your company. It's important that the proper time and effort be
invested in analyzing the advantages and disadvantages when implementing a
franchise program. There are significant operational protocols that must
be constructed and formalized for the franchisee. If the decision to
proceed is positive, then a detailed action plan and appropriate
checklists and schedules, to include financial pro‑forma, must be devised.
If you believe that you have the requirements to become a franchisor
then your next step is to get expert advice!
© 2010 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow, LLC.
He can be reached at