Find Out Now If Franchising is Right For You
Many of our clients come to us with a solid business model, but they just aren’t sure it (or they) are a good fit for franchising. This is a very important question to ask, and we can help you find the answer.
What Do We Look At?
We will study
- Market Share Availability
- The Owner/Ownership Group
- Capital Availability
If you come from a corporate background, this may sound like a SWOT assessment, and in fact it is very similar. However, a franchise feasibility study has more of a limited scope; its sole purpose is to determine of the business being evaluated has a reasonable chance for success as a franchise.
In order for the business to be a viable candidate for franchising, it must generate an acceptable ROI. A good rule of thumb is that, after the second full year in business, a franchisee should be realistically able to anticipate a 20% per year ROI plus an equitable salary for whatever work they do in the business. To understand more about how to measure this, we have a deep-dive into franchisee ROI available.
A Full Review of the potential ROI for a franchisor is beyond the scope of a feasibility study. However, a function of the output of that study will be the maximum sustainable fee structure. A would-be franchisor can get a broad-brush overview from this alone if the capital available to come back to the franchisor makes its business mode sustainable. If you engage Franchise Beacon for Franchisor Preparation Services
, we are able to use the output of a feasibility study to produce a 1, 2, and 5-year pro forma for the franchisor.
A business can be very successful and not at all scalable. Perhaps you have made a very successful living selling concert t-shirts outside of Coachella; that may be a successful business, but it is by no means scalable. If a business is significantly reliant on a unique combination of the background, education, and network of the individual owner it is likewise not a scalable model, and likely not franchise-able.
Finally, you must evaluate the scalability of your product line. Obviously, a business that sells custom, handmade jewelry does not have a scalable product line. While this example seems simple, some specialty retail stores have suppliers that have limited inventories, or with large swaths of the county protected by exclusive agreements with big-box or other large retailers.
The Business Owner
Have you ever made a significant change in your career? You most likely have if you are a business owner. Do you remember how scary it was to go from doing a job you had mastered to going into a field where you had limited knowledge? You are now considering doing just that again. A franchisor typically completely switches focus; going from running a business to supporting franchisees.
A franchise feasibility study must ask; does the owner or ownership group have what it takes to execute on a franchisor business model? You have to ask yourself, do you even want to?
The CEO of a small to medium size franchise organization will likely spend his or her day managing employees, handling franchisee complaints, and working on the franchisees’ businesses. Before you take this step into franchising, make sure you are not only ok with, but also excited about making a change from what you do now to being responsible for the success of many small business owners.
Franchising is not an inexpensive endeavor. You should anticipate a capital outlay of between $150,000- $400,000. That’s a very broad-stoke number, and understanding what your business will take is an important part of this study.
Certain businesses have inherent legal issues in franchising. As an example, a medical practice franchise is not only effected by franchise law, but also by a patchwork of state laws regarding the corporate practice of medicine, which effects what a franchisor can and cannot offer in the areas of guidance and support for franchisees. Additionally, we will do an initial review of obvious trademark or first-use challenges, though you will want to hire an attorney to execute a more thorough trademark search prior to launching your franchise initiative.
In addition to identifying challenges you may face as you enter into franchising, we will review your differentiators, awards, and other brand distinctions, as these may offset these challenges. Taken together, you will have a realistic view of the market potential and likliehood of success of your franchise offering.
Though there are expenses incurred during a feasibility study, we can usually complete this step for under $20,000, often around $10,000. Knowing if you are focused on the right target, now, is likely worth much more than that in future dividends.