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Starting a Franchise? These Numbers Say Do Your Home Work

by Ed Teixeira

For companies planning on franchising their business, it's important to follow through on five key areas.

Franchising is a proven business model that can lead to successful and profitable growth. However, not unlike other business activities and strategies, there is no guarantee of success. In fact a recent study by franchisegrade.com validates that proposition. A study of 405 franchises with no franchises in 2010 was tracked were to 2015. The results indicated that over the 5 year period only 154 franchises opened 5 or more outlets and 102 were no longer in their database. Another interesting statistic came from the Item 20 table, where 14 franchises that had projected 100 or more openings after 2 years, had less than 10 openings in the same period.

The implications of this should be obvious, namely that a start-up franchise faces significant challenges to meet their major objective of growth. In fact, at the recent IFE when I would encounter a new franchisor or a business person considering franchising, I would ask who they see as competition. The typical response went something like this: "We really are unique and there is no one like us, so we don't have a true competitor."

For those either in the start-up mode or considering franchising there are 5 key tips to follow:

1. Have a firm grasp on the target market and don't think that your concept is so unique that you have no competitors. The best approach is to commission a feasibility or market study, whether the franchise is a start-up struggling to grow or a business considering franchising. Most importantly, don't believe all the hype. There are over 2,500 franchises in the US all vying for franchisee investors.

2. Have successful corporate or pilot locations with successful growth and profitability. The more successful corporate locations the higher the probability for launching a successful franchise program. Businesses with 1 corporate location with limited success are taking a chance launching a new franchise program based upon limited results.

3. Be able to differentiate the franchise from competitors by ensuring that the first 5 or so franchisees are profitable. It's a well known fact that franchisees play a key role in the growth and development of a franchise system. Nothing boosts franchise development more than successful franchisees and the reverse is true.

4. Have a well planned franchise development plan. Don't expect to have a successful franchise launch by depending on brokers only. Franchise brokers can complement franchise growth but shouldn't be the main vehicle when launching a new franchise. An inside franchise development team or person is very important.

5. Be sure to have the capital needed to develop and administer the franchise program. A common mistake made by start-up franchisors is having limited capital and the majority of the capital is spent building the new franchise program. Remember after the consultants and attorneys finish their work, your job is just beginning. Don't expect to invest the majority of your money on building the franchise and still be able to grow your franchise on limited capital

Franchising can be a pathway to success but that's easier said than done.

2015 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow.com and Chief Operating Officer, FranchiseGrade.com. He is a former franchise executive and franchisee. He can be contacted at 631-246-5782 or at  franchiseknowhow@gmail.com

 

 

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