7 Factors To Keep In Mind Before Franchising Your Startup

7 Factors to Keep in Mind Before Franchising Your Startup
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Yes, your startup is on the path to securing a solid chance as a successful venture. Your products or services are valuable to consumers, and you intend to target a broader audience. Bootstrapping your growing venture may be a formidable prospect filled with uncertainty.

Franchising your startup is a feasible option to expand its reach and acquire extra revenue streams. There are several benefits from offering your startup as a franchise opportunity and allowing another giant, impersonal corporation to run each establishment under your name.

A perfectly implemented franchise scheme has the potential to expand your startup into a global organization. Other benefits of franchising include: 

  • Franchising is an alternative form of capital acquisition. The source of cash from franchisees can cover business-related expenses.
  • The franchise operators offer motivated management in your startup. 
  • Minimizes any employee-related problems
  • Franchising accelerates your startup’s speed of growth. You can expand geographically or boost your online presence. 
  • Increased profitability
  • Your startup’s value will be higher than other businesses.
  • Franchising reduces risks for your startup.

However, as lucrative and potentially profitable it is, franchising your startup can as well be a two-edged sword. Being misinformed and a wrong approach can turn your growing venture into a disaster. Your startup needs to experience the best franchising has to offer. 

7 Factors to Keep in Mind Before Franchising Your Startup

1. Carefully Filter Prospective Franchisors

It’s best to do your research ahead of time and define your ideal franchisor that will meet your goals. Do they believe in your business? Do they offer a robust support system for franchisees? With so many franchisors to choose from, the options can be dizzying. Remember, your startup’s future is at stake.

Your franchisor must care about your startup’s professional success and growth. Also, once you have narrowed down the individuals who might be the new face of your business, please note how they handle your initial inquiries. Is there a blend of professionalism in how they conduct businesses? 

You can talk to other franchisees and learn about specific prospective franchisors. Inquire about their support system, what they offer, and importantly, will they believe in your business. Always settle for a franchisor who will be a true partner in supporting your growing startup. 

2. Hire And Retain A Franchise Lawyer

It’s vital to have a professional’s word before you franchise your startup. Franchising your startup involves many processes- the financials, geographics, durations, intellectual property protection, legal requirements, and many more. 

There is no better way of approaching these steps and protecting your startup legally than hiring a franchise attorney. A franchise lawyer will help you go through and understand the 150-200 paged Franchise Disclosure Document (FFD). 

A professional sentiment can offer valuable ideas on choosing a business entity. Competent franchise lawyers can advise you should set your new franchise business. Also, in case of any mishaps that may lead to the closure of your business, they can offer valuable help. 

The advice and guidance of a franchise lawyer will go a long way in your startup’s entrepreneurial journey as a franchise. 

3. Consider The Costs

The franchise fee should be a top priority to consider when researching for a franchise model. Purchase costs, inventory, working capital are primarily the typical cost to cross your mind. However, depending on the franchisors, the franchise fee might differ.

For instance, certain franchisors require you to pay training, education cost, website development cost, and even the cost of your pre-opening marketing blitz. It’s vital to cautiously consider the charges of any franchise and evaluate what you will get from your money. 

Opt for a franchisor you can afford and will have great value for your money. 

4. Analyze Market Opportunity and Marketing initiatives

Some franchisors may meet or fail to be responsible for your local marketing. You have to understand the marketing initiative your franchisor will handle to deal with other marketing strategies. Some brands cover all the marketing involved, while others only cover the bigger picture and leave your locality for you to handle. 

Additionally, gather market research to establish if there is a far-reaching customer demand beyond your startup’s local area for what your franchise business would offer. What works in your local area may not be effective in other regions due to cultural nuances or even climatic and seasonal factors.

5. Prepare For Change

Franchising your startup means that you will be engaged in different activities compared to owning the business. If it may be a reason for concern sharing your concept with this other brand, franchising may not be the viable option for your growing venture. It would be best to be comfortable with the extent to which operations will have to be modified.

You have to understand that you will relinquish some of the authority and control you have after successfully franchising your startup. For instance, you will have to take the role of a teacher and salesperson to train and support your franchisees to sell your brand successfully. 

6. Royalties 

It may seem obvious, but you should consider how much your startup will be required to pay in fees. In addition to the initial franchise cost, you will have to pay a royalty fee. Most franchisors need between 5% to 8% of your startup’s monthly sales. However, some organizations charge a higher percentage depending on your net sales. 

You will have to pay more to a franchisor with a percentage-based royalty fee than a percentage-based monthly royalty. 

Franchisors with a flat rate royalty offer an affordable option for your first few months and negligible when you start making huge profits. Still, the difference between 5% and 8% may not sound vast initially, but years later, it may sound like a huge mistake.

7. Be Mindful Of Your Credit Score

Your startup and your individual credit score is a determining factor most established franchises heed before approving your application. Franchisors use your credit score to gather information of how long you have been using credit to make purchases, whether you have taken large loans before and whether you settled such loans.

Startups or individuals with a solid history of repaying debts and an attractive history of managing finances well are likely to receive favorable offers from franchisors.

Final Thought

Franchises are gaining popularity among the startup community. For whatever reason for selecting a particular franchise opportunity, these 7 factors to keep in mind before franchising your startup will give you a clear sense of what may work or not work for your growing venture.