Avoid These 4 Common Mistakes When Franchising
You Need to Have Everything Figured Out
Mistake No. 1: Underestimating costs. - While franchising can make your company (and you) wildly successful,
it can also sink you in a massive hole if you don’t have enough money on the outset. Most startup costs go to legal representation and the drafting of regulatory documents, says Rosenthal. And regardless if your franchise is doing well or not, the Federal Trade Commission mandates you update them once per year.
On the legal side, Rosenthal says costs can range from the “low teens to the mid-20s.” From there, you must file with your state’s attorney general, which could cost you another $1,000 to $2,000. Then there are the accountant fees (franchised businesses must be audited once per year, even if you don’t sell any units), which could ring you anywhere from $7,500 to $15,000. Gulp.
How much are we talking here?
“I’d say you should have somewhere in the high five figures,” says Rosenthal. “I’ve had clients start with less, but it is rare. You really need to set aside legal and marketing money because things add up quicker than you think.”
Mistake No. 2: Confusing the roles of franchisor and business owner. - Rosenthal uses a barbecue restaurant as an example. As the business owner, it is your job to deliver mouth watering pulled pork; you do a great job and have legions of loyal customers. Pretty soon a potential business partner offers to open a franchise and you jump at the opportunity. It’s an ace in the hole, right? Not exactly.
“You need to recognize that being a franchisor and a business owner are two different skill sets,” says Rosenthal. “You may be a great chef, but that doesn’t mean you will be a great franchisor.”
Franchisors must be focused on finding and recruiting franchisees, says Rosenthal. Processes need to be put into place, manuals need to be written and franchisors need to invest time into training franchisees and lower level employees. These duties can take away from those related to owning your primary business.
Mistake No. 3: Lack of planning. - Planning is key to a successful franchised business. Before even considering the business model, make sure you have a detailed operations manual for your business that goes step by step through every process in your company and you’ve talked to an attorney or franchise consultant, recommends Rosenthal.
“Don’t just think that you can do it on the cheap and see how it goes,” he says. “Franchises take a lot of pre-planning.”
Mistake No. 4: Franchising too soon. - Just because your five-month-old Mexican restaurant is selling out every night doesn’t mean it’s time to think about franchising. Rosenthal suggests waiting three years before considering the business model.
“You need to have everything figured out,” he says. “No one is going to want to buy your franchise if you haven’t worked the kinks out yet.”
Source: Americanexpress
Patty Block, President and Founder of The Block Group, established her company to advocate for women-owned businesses, helping them position their companies for strategic growth. Charting the course for impactful, sustainable, profitable businesses, the beacon is control: of your strategic direction, your money, your time, your staffing, and your ability to bring in business. The Block Group brings together the people, resources and ideas that build results.
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