Does Your Business Have Franchise Potential?

So you are wondering if you can grow your business by franchising it. James Corne, Managing Director of the Franchise Institute identifies the top ten ingredients for a successful franchise.

1. An appealing concept
   Ask yourself why people would be interested your business concept. It does not necessarily need to be unique, new or novel, but it does need to have broadly-based appeal.
   If it doesn't have a point of difference from competitors, think about how the business can be packaged or positioned to be more appealing.
   As a general rule, keep it simple. Businesses that have simple procedures, simple rules and simple systems to follow find it easier to franchise.
2. A good reputation
   The reputation of a business cannot be undervalued, as it is linked to image and brand recognition. If your business enjoys a good reputation, this goes a long way to providing ‘evidence' of the success of your business to prospective franchisees.
3. Potential for further growth in a range of locations
   It's important to consider whether it is feasible for your business to be replicated in a number of locations, rather than needing a specific demographic or environment to be successful.
4. A legally protected, recognisable/potentially recognisable name and logo
   This is important because much of what you are selling is your brand name and image. Not only do you need to have a recognisable name, but also it needs to be registered and trademarked.
5. A business that is sufficiently documented to enable another person to run a similar business in a different location
   You need to be able to document your business systems into a format that is easy to access and follow. Creating a 'recipe book', known as the Franchise Operations Manual, does this.
6. A profitable business
   Most people start with this criteria and while I agree it's desirable, I don't' believe it's essential. About 20 per cent of franchise businesses commence as a start-up. Whilst this limits their appeal to a smaller segment of the prospective franchisee market, it doesn't mean they're not viable. Some prospective franchisees like the idea of getting involved with a franchised network when it's a ‘ground floor' opportunity. Most advisors suggest that a business needs to generate a 15% - 20% return on investment after salaries and wages and (after it been operating for at least two years) and after deducting a royalty (usually between 4%-8%), to keep franchisees happy.
7. A unique feature
   This criterion is often touted as being very important, but I don't believe it's essential in determining whether a business can be franchised. Just look around your own city and see how many franchised businesses offer similar products or services.
8. Measurable advantages for a prospective business owner to join your franchise rather than start a similar business from scratch.
   Consider how easy it would be for prospective franchisees to start up a similar business on their own. If you have a business that requires little start up funding, has low overheads and no special skill requirements, you will have to convince prospective franchisees that there are benefits to them buying into your business, rather than starting up their own. These may include an initial customer base, a guaranteed income, or a tried and tested business system. Whatever your advantage is, it must be conveyed to prospective franchisees.
9. A business operation that is easy to learn
   Can a new owner be taught to operate your business as you do? If your business is very specialised and/or requires high skill levels it may still be able to be franchised but you will have a smaller pool of prospects to select from. Conversely businesses that are simple to operate have a broader pool of prospects to draw from.
10. A business that can be financed
    The more your business can be financed through the leasing of equipment, vehicle shop fit out etc, the easier it is to attract franchisees.

Source: Franchising Made Easy; The Secrets The Experts Won't Tell You But You Need to Know, by James Corne of the Franchise Institute www.thefranchiseinstitute.com.au