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To determine if your business is suitable for franchising, consider the portability of its concept, your access to capital, and the value of the brand.

Franchising Your Retail Business Could Be a Smart Growth Strategy

  • James McHugh
  • 11/20/2018

If you own a successful retail business, becoming a franchisor may be a great way to grow your operations and enhance your personal wealth.

The franchise model is common in the retail industry and works well for restaurants, gyms, car dealerships, hotels, and plenty of other retail specialties. If you have a proven business concept and a strong brand identity — and you don’t mind turning over control of the concept to a franchisee partner — then the franchise model may be a smart growth strategy.

To help determine if your business is suitable for franchising, consider the portability of its concept, your access to capital (and even lack of it), and the value of the brand.

Proof of concept

Franchisees are first and foremost looking for a proven business concept that is easily replicated. Although there are no hard-and-fast guidelines for how many operating units a retailer should establish prior to launching a franchisor-franchisee system, you should be able to demonstrate credibility and solid ROI to potential franchisees.

In most cases, it is important to have more than one well-established operating unit. The anchor store is generally positioned in the optimal location and amid the proper customer demographic. But franchisees need to see that units have also succeeded in less ideal locations or across multiple demographics and geographic regions to be confident that your business concept will carry over into other places. However, if the time and capital needed to open additional units allows for competitors to reach the market and fill in those gaps in the interim, it might be advantageous to start franchising after establishing just one successful operating unit.

Access to capital

One of the greatest hurdles to business growth is limited access to capital. If you don’t have the necessary means to open multiple operating units, or giving up ownership and control to outside investors or business partners is not appealing, the franchise model could be the answer. However, you must be willing to turn over control of the concept to your franchisee partners.

If you’re comfortable with this, and access to capital is keeping you back, selling to a franchisee can relieve you of most of the financial costs of expansion. The franchisee must take on a majority of the risks for the significant start-up costs, such as taxes, legal fees, employee salaries and benefits, construction or improvements to franchisee locations, and lease responsibilities.

Although franchising will reduce much of the cost and capital requirements, as the franchisor, you will still incur legal fees, marketing costs, expenses for training programs, and other administrative requirements. Keep in mind that, as the number of franchised units grows, you may need to hire more employees to handle everything from accounting and finance to marketing and brand development.

Brand value

At the core of every franchise business is strong brand consistency. Customers should not notice any differences in their experience or your product quality when they visit different franchise units. This all starts with developing a great on-boarding and training program for new franchisees.

As the franchisor, you will be responsible for developing on-boarding and training programs to ensure that franchisees become ambassadors of the brand and maintain the same quality of product and service that was established at the initial operating unit. Through the on-boarding and training process, franchisees will gain a strong understanding of the company mission, vision, and values. A good training program will set up the franchisee for success and help to enable strong ROI.

But it doesn’t stop there. You must view the franchisor-franchisee association as a partnership. There should be an on-going relationship that provides the franchisee with the necessary support as challenges arise. If that support is lacking, you run the risk of diminishing brand value, which can be the death knell for a franchise. Strong brand equity, on the other hand, can engage more potential franchisees, leading to more store openings and business growth.

How we can help

Franchising can be a strategic way to quickly grow your business and achieve personal financial gain. CLA’s retail-specialized professionals can help you evaluate your options and see if establishing a franchise system is right for your business.