Franchising has become a popular avenue for many business owners seeking growth, but how do you get there? On today’s The Small Business Show, Jordan Krolick, Consultant, Professor, and the President of Tound and Drowth, will walk us through becoming a franchisor.
The number one question that lingers on the minds of business owners is: Is franchising the right decision? Krolick says, “It may not be for everyone, and that’s okay.” However, one of the benefits of franchising is OPM, other people’s money. According to Krolick, when franchising, you must grow your business, scale it, and then in today’s world- you must move quickly because other people could do the same thing in their market.
Requirements:
When looking to franchise, the business model has to work; it has to be successful. As money flows through a typical business model, franchising is geared towards profit sharing. If a franchise can’t run successfully, you won’t be able to grow. Therefore, according to Krolick, what typically needs to happen is that franchisors need to not only run a successful store but also pay you a third or 20% of the bottom line.
- The first thing a franchisee must understand is whether the franchise is replicable. If a franchise is replicable, it can be manageable in multiple markets.
- The second thing to understand is if it can be marketed.
- Finally, you have to be able to support that franchise business.
In terms of franchising, the franchisor may know the entirety of the business, but it’s different when you have to teach the company. Korlick claims, “The critical part is solving problems without telling franchisees the step-by-step guide to run the business.” It’s a parent, child relationship where you can teach them initially, but as they grow, they have almost to figure it out independently.
Additionally, when getting ready to franchise, it’s essential to understand that it will cost you at least six figures. Krolick says, “In terms of cost, a franchise requires you to create an FDD, franchise disclosure documents, which is a 500-page document that lawyers and financial advisors can help franchisees with.” Then it’s essential to account for the people that are buying the franchise system from you. “You can’t just say how you run things, you have to provide franchisees with written manuals, guides, and structures; unless you know how to write, obtaining a writer for those will cost you,” asserts Krolick.
Furthermore, Krolick says becoming a franchisee doesn’t require being an entrepreneur. But, Franchisees typically come from people who “Never have anything to do with the industry or market they’re trying to franchise from.”
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