June 10, 2014
If you are business owner, odds are that at some point in the process you started exploring options to grow your business. If you haven’t yet, take a few moments to consider how you are going to increase your revenue in the next year by double, triple or even more.
Scary, right? Making the jump, whether it involves growing your team, expanding to new locations or looking to multiply revenue, can be terrifying. And exciting. Every business owner should carve out time to explore a plan to expand. Part of this process is evaluating goals for your business:
If you run a successful business with a solid track record and want to grow while maintaining capital and increasing revenue streams, take a moment to consider franchising.
Franchising isn’t for every business, but if your business is a candidate, it’s time to start thinking about growing your business on a whole new scale. As a part owner of a franchise, I’m not only passionate about franchising, but I’m working through the challenges and celebrating the rewards every day.
Over the next few months I will be demonstrating how franchising can be a reality for many businesses, helping evaluate if it is a right option for your business, giving an insight into the process as a whole and much more. My goal is that you will become as passionate and inspired by the idea of franchising as I am.
The largest challenge of expanding your business without franchising is finding capital. Unless you have a large amount of it handy to grow your business, you have two options: Investors or Business Debt.
Seeking out business investors is challenging work. Slowly you are in the business of finding investors, giving long business presentations and signing away ownership of your company at each stop, rather than running your business. Nearly all investors want a larger percentage of ownership than you anticipated, or really wanted to give up. Multiply that by several investors, and before you know it you are a minority owner in your own company.
Next option: business debt. Depending on the structure of your company, signing for business debt makes you personally liable. Most likely you started your own business to make money, not give it away to the banks.
The beauty of franchising is that you can avoid both of those options. In the franchising model, the franchisee puts up the capital for your business to expand. Rather than signing away a piece of your company, you trade your expertise and guidance for the capital to grow. You still own your company, and the franchisee puts all the work into getting making that location successful.
When you remove the limitations of your ability to create capital for expansion, replacing it with the investment from the franchisees, you just removed the limitations on your ability to grow your business. You control the speed of expansion from the driver’s seat, rather than waiting on third party investors.
Add that to a popular, in demand business model, and the franchisees will start lining up. With your playbook guiding committed owners, the odds of successfully expanding increase greatly.
Another benefit comes with dedicated business brokers pitching your business to potential franchisees. While they are navigating through the prospects, giving presentations, and finding dedicated individuals to buy into your company, you spend your time where you are needed most, growing your business.
Typical expansion models involve increasing corporate locations. This means staffing more locations, finding managers to oversee the day to day and instantly doubling the size of your team. Great team members are out there, but are they ever as invested in the success of the business as you are? To some extent, even great managers see your business as just their day job.
Since your business’s success depends so highly on you, odds are you will only open locations in your region. While technically you are not geographically bound, as the sole invested owner, you will may want the to ability to check in on the day to day.
Franchisees have a vested interest in your businesses success. As owners, they have invested capital, time, energy and passion into triumphing in the world of business. They are committed to continuing the success of the business, therefore a far superior option to even the best of managers. With dedicated and vested owners under your wing, expanding out of your geographical region becomes a much more attractive option.
Rather than depleting capital, franchising develops multiple revenue streams. First, the initial franchise fee is usually in the range of $10,000-$60,000. To a franchisee, this is a strong investment because they are able to glean from your expertise, bypass the strenuous learning process you went through, and launch from your current success.
Then, reoccurring revenue. This is where things get really fun. Take a minute and let simple math become your new favorite friend. The two most significant revenue streams are royalties (typically a 4-6% of the profits each month as part of operating under your business banner) and then proprietary products (products that you create and then sell to the franchisee, above cost, but below retail).
What if you have 50 franchisee locations paying $1000 in royalties every month?
50 x $1000 x 12 = $600,000
Just to keep the conversation going, what about if you had proprietary products? For example, a hair salon franchisor could develop their own line of hair care products. Let’s say that each bottle cost you $7. You sold each bottle to your franchisee for $10 and retail was $15. Now consider if you sold 5 cases of 24 to each of your 50 franchises every month.
$3 x 5 x 24 x 50 x 12= $216,000
Now that is just good old fashioned fun.
As we have mentioned, traditional means of expanding consist of seeking out investors or acquiring increased business loans. Additionally, for brick and mortar businesses, you also take on the liability when leasing out more locations. As an owner, the franchisee assumes all the risk associated with leasing properties, obligations for tenant improvements and all insurances.
Say you did franchise your company. Let’s just take a quick review of where you are:
While franchising might not be for everyone, it is an incredibly powerful tool for the right business. To see if your business is something that can be franchised, please reach out to us today.
Feel like you need a mentor? We also have a mentorship program with Bob Steinberger to provide you with one-on-one support from someone with hands on experience. Send us an email or give us a ring – contact info can be found here.
