As a franchise consultant, a question I commonly hear is “What are some issues that should be considered when deciding to franchise your business?”
I urge all people considering whether to franchise your business to do your homework – how much money will your Franchisees make? If your target Franchisees do not make enough money to justify the investment, why go to the trouble to franchise your business?
When addressing this issue, one of the questions to answer is will you structure your franchise program for owner/operators, or will the Franchisees have to pay managers to run their franchise locations? If one or more full-time managers are likely to be involved, build that expense into the Franchisee’s budget.
When deciding whether to franchise your business, look at your company-owned location(s). Is it likely that a new franchise unit will generate similar revenues, higher revenues or lower revenues? Also forecast the expenses for a typical franchise location. After you have estimated the income and expenses, you can project out the profits. You may choose two or three different projections – a low range, medium range and high range.
The bottom line question when you franchise your business: does the projected profit allow the Franchisee to pay the Franchisor a royalty and still have enough money remaining to make a decent return on investment?
Remember, when you franchise your business, the royalty or service fee can be the majority of money earned by the Franchisor, especially at the outset of the franchise program. The royalty or service fee may be a percentage of gross revenues generated by the franchise location or a flat fee. It is usually paid weekly or monthly.
Here’s an example:
- When you franchise your business, your franchise locations average $1,000,000 in sales per year.
- You have a 6% service fee, for $60,000 annually per franchise location in service fees.
When you franchise your business, no matter what the franchise location grosses, it should have a reasonable expectation of generating enough funds to (1) cover the expenses, (2) pay the royalty or service fee to the Franchisor and (3) make a reasonable profit.
If not, there is little point in choosing to franchise your business!
Thinking About Franchising?
NFA Franchise Consultants have the experience to help businesses franchise. Just watch and listen to some of our client case studies and video testimonials. We can HELP YOU and it doesn’t cost anything to call and talk to us!
So, if you are still asking the “should I franchise my business” question over and over with no clear direction, give us a call at (706) 356-5637, or contact us through our online form. We look forward to helping you take your business to the next level and beyond.