How to Determine Business Readiness to Franchise

Many successful small business owners crave to turn their businesses into franchises. Stories that franchise giants such as McDonald's, Kentucky Fried Chicken, Carvel, Starbucks and Wendy's began as mom-and-pop operations inspire these owners. While a thriving franchise can rake in millions overnight, many turn out to be financial disasters. The following steps can help you decide if franchising can work for you.

Difficulty: Challenging

Instructions

1. Think about the motivation behind franchising. Determine if franchising is necessary in order to expand the business and if the owner is prepared to adjust financially, emotionally and physically to the business' expansion. If either question is answered negatively, then another kind of expansion that doesn't require franchising might work.

2. Determine the need for the franchise by searching to see if such a franchise already exists. If it does, make sure of the new one's uniqueness and that the differences can be marketed easily. If such a franchise does not exist, decide if there's a need. This Step guides the business' marketing image.

3. Write an Operations Guide for the current business. All of the company's resources, products, services and practices must be condensed into this practical manual. As the business expands, others perform duties previously done only by the owners.

4. Finalize the product that the franchise sells by creating a protype. Chances are, the current product can be improved in appearance or performance. The finished product must be capable of constant repetition. By nature, a franchise reproduces a prototype that ultimately becomes embedded in public consciousness.

5. Calculate the startup costs. Err on the side of overestimating rather than underestimating. Expect to include the costs for prototype development and design, legal costs, primary marketing and hiring new personnel.

6. Verify that enough money exists to support the new franchise after initial marketing. Most entrepreneurs assume a new product won't sell for the first 6 months and expect another 4 to 6 months to pass before more are sold. The company must possess enough capital to keep it going during this experimental period which can last up to two years.

7. Assemble a Board of Directors to run the company. Each Director must have a distinctive role and be talented enough to be regarded as an expert. Investors want to know about the franchise's management and use this as a criteria for investing in the product.