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What Does it Take to Be a Franchisor? Julie Lusthaus, Franchise and Business Law Attorney Two important questions to consider when deciding whether to take the leap into franchising your business: 1. Should you franchise your business? 2. Are you ready to franchise your business? How to Determine if Franchising is Right for You
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ou have a great business. Things are running smoothly, and you are making money. Is the next logical step to franchise? Maybe, maybe not. Having a successful business does not necessarily translate into having a successful franchise system. For every McDonalds, Hertz and Choice Hotel, there are countless businesses that could not and should not franchise. Some business concepts are more franchisable than others. Here are six factors you should consider when analyzing whether you should franchise your business. 1. Differentiation. Is your product, service or business model unique? Do you have a recognizable and memorable brand? Can you clearly identify what makes your business stand out from the crowd and sets you apart from your competitors? 2. Credibility. Do you have a solid foundation of success? Have you been around long enough to have a proven track record, a strong reputation and well-defined management and operations processes? If your trademarks, logos, services and systems of operation are not viewed by others as valuable, no one will be willing to pay for them. 3. Replicability. Is your business model easy to replicate? Will it work in other markets? If your products or services are dependent on your locale, this is a red flag and the business is probably not a candidate for franchising. If your business is dependent on your personal brand or effort, it may not be appropriate for franchising. 4. Teachability. You will have to have a training program in place for your future franchisees. Are your systems well defined enough that they are easy to learn? Do you have processes in place? Are your concepts broad enough that most people can learn them? If your business is highly technical or requires very specific skills, it may not be a great fit for franchising. 5. Marketability. This element requires research and understanding of the market and its relationship to the viability of your business. What is the market for your business as a franchise? Is there room for growth, or is there saturation? Who are your competitors and can you compete with them? What are the prospects for growth? Determining the potential for growth for franchisees is also key. This may be one of the most important elements in helping you determine if franchising is right for you, so invest some time in this research. 6. Profitability. Profitability is critical for your success as a franchisor and for attracting franchisees. Potential buyers must be able to earn an attractive profit after paying royalties and other fees. Low profit margins will not make for successful franchisees.
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