Chapter 2: Evaluating Your Business for Franchising Potential

Considering franchising as a growth strategy for your business can be an exciting prospect for any business, but it requires careful evaluation to determine if it would be successful. From assessing the profitability and scalability of your business model to examining its financial viability, this process plays a critical role in determining whether your business is ready to grow in the hands of franchisees.

By conducting a comprehensive evaluation, you can gain valuable insights that will not only help you make informed decisions but also create a solid foundation for a successful franchise expansion.

One of the most important qualities to consider when evaluating a business for franchising potential is whether or not it is replicable in another part of the country. In order for a franchise to be successful, local owners need to be able to adopt the system.

“There’s a huge difference between doing it yourself and having someone follow what you set out for them,” Cliff Kennedy, CEO of Frios Gourmet Pops, previously told 1851 Franchise. “You have to ask yourself if your business is replicable and if you are willing to do that.”

The CEO added that business owners need to be able to hand over their business to someone else and still have it maintain the same culture, customer service and consistency.

In addition to replicability, president of Pool Scouts* Michael Wagner notes that brands should also ask questions such as the following: Can it scale at a national/international level? Is there room to create a national brand? Are there solid unit economics that can be replicated? Is the value of the business all in the goodwill of individuals or is it a scalable opportunity?

Brands should also conduct a thorough business analysis before franchising.

“Really dive into unit economics and what it would require to support a franchise system from a people and systems perspective,” said Wagner. “Look at any regulations that exist in states for licensing or other barriers to entry.”

There are several types of professionals that can help brands navigate the complexities of franchising before they start. Legal counsel, for example, is a great place to start. Wagner recommends talking to legal counsel when creating the all-important Franchise Disclosure Document.

It is also important to consult a financial professional to help evaluate the financial feasibility of franchising and to create accurate financial projections. They can also assist in determining franchise fees, royalty structures and other monetary aspects of the franchise model.

“Funding needs to be set up before launching a franchise system as it is expensive and takes time,” Wagner added. “Also, look for regulations in the industry that would prohibit or delay entry into the market with a national brand.”

Brands can also talk to franchise consultants when evaluating their potential for franchising. These valuable resources specialize in the franchising industry and can help assess the brand's readiness for franchising.

It is also crucial to develop a unique selling proposition (USP). A USP can be defined as “the factor or consideration presented by a seller as the reason that one product or service is different from and better than that of the competition,” according to Entrepreneur. USPs are especially important when a brand is offering a product or service similar to others on the market.

“Work with a branding group/agency and legal resources to properly position a brand for a franchise concept,” said Wagner. “It is extremely important to convey the message and to ensure proper copyright and trademark issues.”

Evaluating your business for franchising potential is a crucial step when determining if expansion through franchising is right for your brand. Through analysis of your business model, financial stability, operational efficiency and brand strength, you can gather valuable insights that will help you embark on your next steps.