You have a unique product, offer a great service and consider yourself successful – but you want to grow. You want to increase profits. Perhaps adding new products to your line or services to your repertoire are things you’ve considered. But what about taking your growth to the next level? Opening a second location and creating a franchise both offer expansion opportunities, but are also very different. Ask yourself, which one is right for you?
Franchising
To initially figure out which path will work for you, ensure that you fully understand the concept of franchising. Franchising is defined by Einbinder & Dunn, LLP, as “a method of expanding a business where the franchisor licenses its trademark and business system to a franchisee in exchange for payment to the franchisor for the right to operate the franchise, using the business system and trademark.”1
One of the advantages to offering a franchise allows your business to expand without the costs because the franchisee makes the investment. You are also given the opportunity to focus on your brand and business model as a whole, without worrying about the day-to-day operations of each location.
Once you’ve determined that you have a future in franchising, you need to generate interest for the franchised branches. There are several advantages of a successful franchising operation that will attract potential franchisees, such as buying a system that’s proven to be successful and allowing franchisees the ability to tap into the franchisor’s experience and knowledge of how to operate the business. Because the franchisee will be regulated to follow your already established business model or manual, the risks are significantly lower with a franchise.
Consider the role that you, as the owner of a successful business concept, wish to serve. As the franchisor, do you have what you need to launch this process? The legal aspects of franchising are well-defined, with many resources available. Einbinder & Dunn, LLP, recommend you answer the following questions before you make the decision to franchise. Has your business concept proven to be successful? Can you teach others to operate your business? Does your business have unique and regional/national appeal? Do you have a support team (including management) in place?2
Owner of two Henry’s Gelato locations in Cary and Southern Pines, NC, Henry Dirkmaat understands the legal aspects of franchising since he recently completed the process.
“The initial step for me was to trademark my business and branding concept before drawing up the franchise agreement. After two years and several hundred pages later, I have all the documented procedures for my franchise stores to follow; including items such as location selection, the defining of geographic territories, the number of franchise locations that can be opened in a specific amount of time, any competing business issues, opening procedures, cleaning and sanitation, and employee policies and procedures. Once this was completed, the franchise agreement was the next step, and that itself is over 90 pages in length. All of these things were executed with the assistance of my attorney from the very beginning, which is strongly advised.”
Something else to consider is the type of franchise you want to offer. In some cases, the owner of the business can allow a retailer to distribute the product and use the business’s name and trademark. Other ventures require the franchisee to purchase and distribute only specific products, which could mean in-store, kiosk or other method. Another opportunity in franchising is when a business provides the proven method for operation, including the name and trademark. While this is typically the most popular form of franchising, it might not necessarily be the one for you.3 If interested, seek the resources and advice of someone who has experience with franchising. This will help you with the requirements, legal work and the overall plan to franchise.
“Having branched over to franchising from owning two locations, the good news is that I receive several franchise requests each week, spanning America. The downside is, franchising is an endeavor that can only be completed by someone who is not daunted by painstaking research, as well as extensive legal procedures and costs,” says Dirkmaat.
Second or Multiple Locations
If the facts and figures for franchising are not projecting the route you wish to take or the role you wish to play, there is another option for expansion. Opening a second location comes with a completely different set of challenges but can offer a broader marketing area for you. One positive aspect is that as the owner of the original location, you have the option of dedicating as much or as little time, and services as you wish. Similar to franchising, be sure that you have a successful idea that will stand the test of time and location, and not merely in your eyes and those of your existing customers.
The role of the manager is very different in each of the two models. In independent operations, the manager is usually the source of the rules and regulations, as well as the decision-maker. Staffing levels and purchasing decisions are dictated by the manager. When operating as a franchise, all power is centralized within the franchising company’s realm. The manager’s role is to uphold the goals, standards and practices of the franchise. Opening a second location will ultimately take time away from your existing location, but will allow you to explore what works in different locations, markets and stores.
Often, businesses will open a second or third location before exploring the franchise model. This is another reassurance to interested franchisees that the business model has proven successful in multiple locations. Look internally at your current staff; ask yourself if there are reliable employees to manage your current location and the new location, freeing you to focus more on the overall business model. An entrepreneurial business owner (who asked to remain confidential), shared the process that he and his partners followed.
When exploring the options of entering into a frozen dessert business, we did not consider looking into opening a franchised business. The initiative we followed was building the brand of our own business.
The process that we enacted was to first establish a solid business plan with a single location. The success of that location would be proof that the concept and product are unique and would be successful with multiple locations. The entire planning process spanned over 18 months from concept development to opening our gelateria. The steady development plan was then put into place, ensuring that each goal was achieved before we advanced on.
We have multiple locations now and the next step is for me and my partners to explore growth opportunities outside of our city or begin our own franchise.
The choice is yours as you consider aspects on each side of the issue that may seem attractive and viable as the next option. Franchising continues to have a high success rate with an interesting mix of services and products to consider. Perform market research for new locations or think about ways to improve your current shop or restaurant. If you have a successful business model and a clear vision for expansion, both franchising and additional locations will strengthen your brand and invigorate your future. Choose wisely, believe in your business and welcome a bright future. There is no better time than now to start on your new path!
References:
Frequently Asked Questions for Franchisors. (2009). Einbinder & Dunn, LLP. Retrieved July 8, 2009, from ed-lawfirm.com/franchisor-faq.php.
Can Your Business Be Franchised? (2009). Einbinder & Dunn, LLP. Retrieved July 8, 2009, from ed-lawfirm.com/franchise-business.php.
Four Types of Franchising. (2009). Franchise Expo. Retrieved July 8, 2009, from franchiseexpo.com/general.cfm?page=fourtypes.htm.
Sources:
Business Web site dedicated to entrepreneurs and helping them grow in their endeavors (entrepreneur.com/growyourbusiness/howtoguides/article47552.html).