“Don’t franchise, I was making more money when I had 3 of my own stores than I am now” – this sentence said by a not to be named high profile franchisor at an awards night in Zambrero’s earlier years left me stunned and numb.
How could someone like this be this against franchising – luckily this person was one of the only people who have ever said this to me, but as we have grown I have come to understand how franchising can be amazing for some, but debilitating for others.
People over the last few years have come to me with businesses ranging from gyms and restaurants, to consulting services and have said to me, not asked “I want to franchise my business, can you help me?” – because they all think, thanks to McDonald’s, that franchising your business is almost a guaranteed get rich quick scheme.
Franchising your business, don’t get me wrong, can be incredibly rewarding both financially and personally through the relationships that you build with your franchisees, but can also not be the right business model for your business.
Franchising your concept is, and needs to be said loudly, IS A LOT OF WORK!
You have to ensure that your franchisees are able to be successful. You can only do this by looking closely at your business model and ask yourself the first and most important questions – “can I take a strong enough royalty to make enough money for me to run the franchise as well as enough money for the franchisee to get a great return on investment?”
Without looking at these numbers and understanding what it takes to be a franchisor of a brand you with either cause the downfall of your baby that you have built up and spend time and effort creating or the downfall of your franchisees, often putting families into financial ruin so you need to be careful and take the time to run the analysis – if you are not great at numbers, that is ok, there have been many great entrepreneurs and successful men and women who don’t understand them but they surround themselves with people who are amazing at them – let them do it!
Think of it this way – because you are franchising a business model and you and the franchisees are taking a cut from the business, technically your business model has to be stronger than any other independent business model so that you and your franchisees can earn a living whereas independent owners and company store operators have no royalties to pay so should make more money than you – unless you have a great model or get greater savings through economies of scale.
The next question that you need to ask yourself is – “how many franchisees, stores or locations can I sell or is possible?”
This is important to help you understand the business model that you are creating. For example in Australia, I personally would never recommend anyone franchising a fast food concept that they couldn’t open up more than 30-40 stores as generally if you are building a strong team in your support office, you won’t show a strong profit until greater than 20 stores.
If your product or concept is so niche that you can only open up 5-10, then own them yourself and grow a little more slowly of if you need to, raise capital and dilute a bit of your shareholding in order to achieve success – whatever that looks like. I definitely would be ok with managing 5 company stores compared to 30 franchises if I thought that would make me more money but every model and concept is different and needs to be treated as such.
So when you or someone you know say those words “I want to franchise my business” you are now armed with a little extra knowledge to help make a decision that can save you a lot of time and money.