Accounting & Finance
How to Convert Your Independent Business to a Franchise
The recession has hit businesses hard, but the good news is franchising is showing some promising signs of recovery.
The recession has hit businesses hard, but the good news is franchising is showing some promising signs of recovery. The number of franchised establishments is expected to increase by 2 percent with 17,801 units in 2010, employment by 0.4 percent with 36,000 additional jobs and overall output by 2.8 percent with a net gain of $23.6 billion. These numbers boast well for independent businesses looking to convert to a franchise. But even if your business is booming and you are ready to expand, many challenges lie ahead. So it’s important to have a thorough plan in place before you begin to build your brand.
One of the biggest challenges that an independent company looking to convert to a franchise will face is obtaining the rights to its name nationally and internationally. There have been instances where businesses attempting to franchise find that another company is already using its name at a local level. This is one of the first things that a person must clarify before franchising.
Another significant challenge is the need to create a detailed documentation of all systems and procedures throughout your company; this is necessary in order for the business to be replicated by future franchisees. A comprehensive plan can be in the form of a hard copy or an online manual. Yet no matter what form it takes, this is a huge undertaking. As a result, many companies use consultants that specialize in preparing such manuals.
Since overhead costs associated with franchising a business are so high, one needs a significant number of franchisees to pay royalties in order to cover the overhead structure. It’s a good idea to spread the word about your brand through trade shows, social media and traditional public relations. In relation to the internal structure of the company, it is likely that the management team will have to be strengthened with a senior person designated to handle all franchising.
A company should also assess its ability to source outside capital. Venture capitalists are interested in investing in franchise companies because of the possibility of significant growth and return on investment. The investment can be used to strengthen your management team and also buy outside expertise. You must also factor in the cost of establishing a “pilot.” Although you have already started a successful business, this doesn’t mean it can be franchised. A pilot is a second unit in a different location. If the pilot is profitable after a certain amount of time running, it is then used as the reference point from which the franchise is grown.
The Internet is the largest source of inquiries for franchisors, so creating a detailed website and joining an online franchise portal is a great way to generate franchisee leads. Also at trade shows, you can learn more about franchising through free informational seminars and speaking with successful franchising veterans. The West Coast Franchise Expo Nov. 5-7 at L.A. Convention Center, for example, will feature 200 exhibitors, over 30 informational seminars and thousands of potential investors.