As franchise consultants, you might think we always say yes. In reality, we tell about a third of the owners who come to us that they are not ready, or that franchising is not the right fit for their business. Here’s how you can figure out which group you belong to.
You should franchise your business only if each location is profitable, someone else can run it besides you, and there is enough profit for both the franchisee and your royalty. If any of these are missing, fix them before you start franchising. Don’t use franchising to solve these problems.
The last point is especially important. Franchising will not fix a struggling business. It simply copies what you already have, including any problems, to more locations and more owners who are trusting you with their investment.
There are three situations where we would generally recommend fixing the underlying issue before moving forward.
A franchisee must be able to make a worthwhile return after paying royalties, marketing contributions and normal operating costs, while also allowing for a reasonable owner’s wage. If the numbers only work because the owner underpays themselves or works excessive hours, the model is not yet ready to franchise.
A franchise needs to be teachable and repeatable. If the business depends heavily on your personal knowledge, judgement or day-to-day involvement, those processes need to be documented and turned into systems that someone else can follow successfully.
Franchising is not a hands-off growth model. Your role changes from operating one business to supporting a network of business owners. That means training, coaching, monitoring standards, solving problems, improving systems and managing franchisee relationships. A well-run franchise network can become highly scalable, but it still needs active leadership.
Franchising is a way to scale a business that already works, not a way to rescue one that does not. If the underlying business is losing money, struggling to attract customers or has operational problems, franchising will usually multiply those problems rather than solve them.
The right approach is to strengthen the core business first, prove the model, and then franchise from a position of strength.
Franchising works when you have a proven, documented, and transferable model, along with demand that you cannot meet on your own. It shifts your growth challenge from needing more capital to building better systems.
The pattern we see in systems that work:
Licensing can sometimes be a better option, especially if you want to let others use your brand or product without the ongoing support that comes with franchising. However, this is not a way to avoid the Franchising Code. Whether an arrangement is a franchise depends on what it actually is, not what you call it.
Many arrangements that are marketed as licences actually meet the Code’s definition of a franchise and are regulated as such. Making this mistake can be costly. We cover the distinction in detail on our franchising versus licensing page.
Work through these questions honestly. You do not need to have everything perfect before you start, but if you answer no to more than two, there is probably some groundwork to do before franchising is the right next step.
Write down how your business operates and show that it can run without you. Doing these two things will make franchising possible in the future and will also make your business more valuable and easier to manage right now.
None of this work is wasted. A business that is well-documented and can run without the owner is worth more if you sell it, easier to manage if you keep it, and ready to franchise when you are.
There is no legal minimum. In practice, having two or more sites, with at least one that you do not personally manage, makes it much easier to recruit franchisees because you can show the model works in different situations.
Yes. In fact, service and mobile businesses are often better suited to franchising than retail businesses because they do not have fit-out costs. What matters most is whether the service can be taught and delivered consistently, not the industry.
Small businesses succeed at franchising all the time. The size of your business is less important than whether your model is proven, documented, and profitable enough to support both a franchisee and a royalty.
Usually, franchisees do not get enough support and struggle, which can hurt your brand and lead to disputes. Under the new Franchising Code, franchisors must give franchisees a fair chance to make a return on their investment.
If you are starting with little documentation, expect to spend six to twelve months preparing before you start building your franchise. Owners who already have documented systems can move much faster.
The Franchise Assessment is free and takes a few minutes. If your business is not ready, we will tell you that — and what to fix first.
