Okay, now you have a successful business. You’re selling

products, paying the bills, meeting the payroll. What’s next? Well, next is examining how your “system” is working and how you can multiply your success.

Let’s imagine that you have reached the five year mark of doing business with your business opportunity.  By now you’ve smoothed out the rough spots in your operation, adjusted your goals to meet changing conditions, and established your position in the community.  Your job now is to expand your opportunities.

Expanding your business by opening other outlets can quickly double or triple your volume.  The downside, of course, is how in the world you are going to find the money to open one or two more stores, in addition to the one you have.

However… if your business system is profitable, I would strongly recommend franchising.

Franchising usually requires a much smaller investment than the cost of establishing a new business, and the potential for expansion is virtually unlimited. This concept has seen explosive growth in recent years.  According to current estimates, 40 percent of all retail sales in the United States today come from franchised businesses.

Based on data from the International Franchise Association, the average new franchisor sells six to eight franchises in the first year at an average initial franchise fee of $20,000 to $30,000. That adds up to a potential first year income of $120,000 to $150,000 in initial franchise fees alone. You also get additional income in the form of monthly royalties – five to eight percent of monthly gross sales – which could amount to $200,000 more per year.  In addition, as a franchisor, you can also sell proprietary items to your franchisees.

I don’t mean to wander into the realm of wishful thinking here.  But you can easily see how profitable franchising can be – and you don’t even have to be McDonald’s or Starbucks to be successful.

The primary advantage of franchising, is that you, as a franchisor, have virtually no investment at the store level.  Basically, you expand your business and your potential income, but the franchisees pay the bill.  Franchisees build or rent their own stores, buy the inventory, pay the employees, and provide the working capital.

As a franchisor you’re not involved in day-to-day management – yet you gain an expanded pool of highly motivated people who treat their franchises as their own business – because they are.  (And as a bonus, there is little or no manager turnover, because the franchisee owns his business!)

Franchising offers a number of financial  and  practical advantages over traditional  expansion methods, like adding satellite locations, which usually amounts  to  “reinventing the wheel” for each new location.

These include:

1) Faster expansion compared to one-at-a-time methods such as opening multiple locations (not to mention the headaches).

2) Economies of Scale resulting from purchasing products in larger quantities for both your business and to resale to your franchisees.

3) Enhanced Business Image can accrue with the perception of a higher level of p professionalism.

4) Lower Capital Outlay versus opening multiple locations.

5) Minimal Increase in Personnel, since few employees are needed at the Franchisor Home Office level.

6) Owner-operators meaning better motivated personnel to operate new locations, since they will be running their own business.

From a practical point of view, franchising describes a business system which is controlled by a franchise agreement.  There is no federal registry of franchising or any federal filing requirements.  The only federal law governing franchising is the Federal Trade Commission rule, which requires a franchisor to have a document called the Uniform Franchise Disclosure Document (UFDD), which discloses certain facts to potential franchisees about their purchase.  This disclosure document must be given 14 business days prior to closing the sale (franchisor agreeing to offer the prospective franchisee a license).  The term “franchise” often brings to mind such giants as Hardees’s and McDonald’s, but in fact, any business which operates via a franchise agreement is a franchise.

It should be unnecessary to say at this point, but if you are setting up a new franchise, you must actually have a business to franchise.  The business should be a proven system that can be demonstrated as a successful business method.  Any business that operates via an established, thriving, and transferable business scheme or process is a good prospect for franchising.  It needn’t be a large multiunit corporation (I have seen and been a part of several smaller franchises, including a small 120-franchisee tax preparation Arkansas company that literally grew out of a barn. See “Tax Centers of America” for an example of a home grown franchise.)

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Related articles

• Guide to the FTC Franchise Rule and Franchisors Required Disclosures (thebusinessstartupkit.com)
• Franchise Operations Manual is the Corporate Guidebook (thebusinessstartupkit.com)
• What are the Advantages of Franchising? (thebusinessstartupkit.com)
• How to Develop a comprehensive program for Franchisee Recruitment (thebusinessstartupkit.com)