Merchant Capital

Should you turn your business into a Franchise?

Franchising may be a great way for you to grow your business. It’s one of the fastest ways to expand into locations you may be unfamiliar with and, if done correctly, it can become a great stream of incoming royalties. It’s a great way to expand your market share without you being the one doing all the work that’s involved.

However, this is quite an intricate process so, how do you know if it’s the right step for your business? Here are some pointers to guide you on whether this is the right move for you and your business.

What is a Franchise?

A Franchise allows other entrepreneurs to acquire the rights to your company’s branding, business practices, operational strategies, and trademarks. The franchisee then pays you back in monthly royalty fees based on how much that franchise location makes.

This differs from a licensing agreement because that involves you giving another company permission, thus the license, to distribute or sell one or more of your products and they then pay you a royalty fee. Licensing agreements focus on the product and not how the business selling the product, is run.

How do you get started?

The first step is to assess whether your business is ready to become a franchise. You’ll need to objectively, and without bias, appraise your business’s success and areas of improvement before getting ahead of yourself.

Assess whether your business concept has staying power because that plays a critical role in the success and longevity of a franchise. How easily can your business model adapt to be more suitable to become a franchise? Can the skills required to run your business be easily transferred to another? Investigating these questions is a good way to determine what your starting point realistically looks like.

What are the requirements?

Turning your business into one that can become a franchise is certainly not an easy one. You’ll need the assistance of professionals like attorneys and franchise consultants. You’ll also need to be realistic about the financial muscle that you have because setting up a franchise can cost you anything from R300 000 to R 1 000 000. Converting your business into a franchise will also take quite some time, it could potentially take at least 6 months and this estimate is based on a well-proven business concept.

Legal Requirements

You’ll need to ensure that you have a trading name and are also trademarked for you and your potential franchisee’s protection.

It’s too strenuous to do this all on your own. The services of franchising consultants will be needed to help guide you through this intricate undertaking. They should be well-versed in the entire process and can assist you with the requirements like creating an operation manual, a franchise strategy, and the development of various marketing tools you need to make use of.

You’ll also need the services of attorneys to help you with matters that involve drawing up legally sound documents like Franchise Disclosure Documents and Franchising Agreements. There are also financial implications that your attorneys can help you navigate.

Financial Requirements

Transforming your business into one that’s franchise-ready could cost you anywhere from R300 000 to R1 000 000 and this is excluding the franchise consultant and attorney fees. Because the capital investment is so high, you must ensure that your research is done accurately.

Marketing Requirements

You are responsible for marketing your franchise opportunity to your prospects. So, you must ensure that your business’s branding is unique enough to stand out. You don’t want to undergo this entire process only to find out that you and your competitors basically look the same.

You’ll also need to ensure that your business model can be easily understood so that any franchisee you need to train, won’t be left with more questions than answers.

The Bottom Line

You want to undergo this process by being fully transparent about your business’s capabilities and potential limitations. You may need a few more years of preparation before exploring this further or your business may be ready right now, but when done correctly, franchising has a lot of benefits and chief among them is its profitability.

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