Five Key Tips for Franchising Your Business
By Harold Kestenbaum, Esq.
Before deciding to franchise an existing business itís important to
answer some key questions. Veteran franchise attorney, Harold Kestenbaum,
presents five tips that need to be considered before franchising a business.
After, representing franchisors, for the past 35 years Iíve observed
various degrees of franchise success. Iíve witnessed the successful, the
mediocre and the failures. The question to ask is what sets the successful
start-up franchises apart from the rest of the pack? While there is no
simple answer, there are guideposts that one can look for when answering
this question. In my book, So You Want to Franchise Your Business, I spend
several chapters describing what a company needs to do in order to become a
successful franchise company. There is not enough space to give all of
the details; however, there are five tips for those aspiring to be a
- First and most
importantly, you need to have an operable business. The notion that an idea
can be franchised is not one that I advocate and one that does not make for
a successful rollout. There needs to be an operating business model that the
franchisee can see and touch. Try convincing someone to buy a yogurt shop
franchise if you don't have one in operation and no one can actually taste
the yogurt! No matter how good a salesman you think you are, that is not
going to happen.
- Second, remaining on
the prototype theme, it should be operating for a minimum period of time. My
recommendation to potential franchisors is that the prototype be operating
for a minimum of six months, but one full year is most desirable. It is a
tough sell to convince someone to buy your franchise if you only opened your
business two weeks before. Next, the prototype must be profitable. You
should not consider franchising your business if you cannot earn a profit
from it. This is a recipe for disaster. I had a client who sold franchises
in a business model that was not thoroughly tested out and not a single
franchisee made money, and they ultimately closed. This is critical: nobody
wants to invest into a money losing venture. The business must be capable of
being duplicated and modeled as a franchise. It cannot be a one off a kind
operation, like a gourmet restaurant that requires unique hands on control.
If there are tweaks to be made to get the location profitable, then wait
before launching the franchise program until it can be profitable.
- Third, you need to have
a capital reserve in order to roll out the program. Franchising a business
is not an inexpensive proposition and you should not consider doing it on a
shoestring. There are professional fees, attorneys (me), accountants,
consultants and marketing people who need to be involved and if you do not
have a budget of between $75,000 and $150,000, you can be headed for
- Fourth, although you
are the driving force behind the franchise opportunity, you cannot do it
alone. In fact, donít think that you can operate your existing business and
roll out your franchise program at the same time. It becomes overwhelming
and impracticable. You cannot be in two places at once, either you are
running your existing operations, or you are running your franchise company,
but don't try to do both at the same time. If it means hiring a manager to
run your unit, or bringing in a professional franchise person to run the
franchise system, thatís what it will take to successfully launch and
operate your franchise company.
- Fifth, you need
patience. Franchise success does not happen overnight and it will take a few
years to be achieving the success of a new franchise roll out.
These are my five tips, they may sound simple, but trust me, they are
critical to the success of a new franchise operation.
Harold L. Kestenbaum is an attorney who has specialized in franchise law
and other matters relating to franchising since 1977. Currently, Mr. Kestenbaum is Counsel to
Faltischek, P. C. and is engaged exclusively in the practice of
franchise distribution and licensing law, representing exclusively
franchisors, both start-up and established. He is the chairman of the Ruskin
Moscow Faltischek, Distribution and Licensing Practice Group.
© 2010 FranchiseKnowHow, LLC