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Lanard Law Blog
SHOULD I CONSIDER FRANCHISING MY BUSINESS?
How do you determine if franchising is appropriate for your business? Over the years that I have been handling franchise law I am often approached by people who have a great business concept they would like to consider franchising. How do they make the determination of whether franchising the business is appropriate?
First of all, in order to prove the concept is strong and therefore able to be considered for franchising, the business should be in existence for enough years to prove that the model for the business works. A new business, or one that is only an idea, is not one that should start franchising. A business needs time to work out the kinks, learn from the mistakes and fine tune the model that it intends to sell.
Once a business has been around for a while, another important step before franchising is proving that the model can work if reproduced. Can the model work a second and third time as successfully as the first? Can this business model work in other parts of the state or country? A determination of whether the model will work in rural areas, urban areas or suburban areas, whether it works in the Southern US as well as in the Northeastern US, for example, are all concerns that should be evaluated when deciding if franchising a business is likely to succeed.
Another critical analysis is whether the business generates sufficient revenue to support the future franchisee while also paying sufficient royalties, advertising fees and other fees to the franchisor. Many businesses may have a great concept, be able to be reproduced in other parts of the country, but not make sufficient revenue for a prospective franchisee to pay him or herself a salary while still paying royalties, advertising fees and other business costs (rent, salaries to other employees, utilities, etc).
As you can discern, this is just a few of the many criteria that should be evaluated when considering franchising a business. For more information, feel free to contact me at 215-525-1165.