3 Reasons to Franchise Your Business

The following Q&A with Big Sky Franchise Team President and Founder Tom DuFore is excerpted from Credibly Business Journal Vol. 1: Grow Your Business Through Franchising, which features advice and insights from 14 franchising executives and thought-leaders. Click here to download it for free.

CREDIBLY: Why franchise your business? What are the benefits?

TOM DUFORE: There are three primary reasons that are pretty consistent among businesses that franchise. The first is capital or money — or rather, using other people’s money to grow your business, which is really what franchising does. Someone else is going to invest the necessary capital to open the location or territory. They’re going to buy the vehicles, furniture, fixtures, equipment, inventory, and whatever else is needed to run and operate it. This tends to be the #1 driver as to why a business would consider franchising. But it’s not the only driver.

The second component is human capital, which is the personnel or people side of the business. As any small business owner who’s tried to expand into multiple locations or territories knows, finding good quality employees or managers is always hard, and when you find them, they’re always difficult to keep. So when you franchise, you’re not only getting someone who’s going to invest in your business but you’re also getting someone who in most situations will be that vested owner and operator who will keep a close eye on the business.

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And the third reason someone might franchise their business is speed and the ability to grow more rapidly. Even if you were to only sell one franchise a year for the next 10 years, that’s faster growth than most small to mid-sized businesses would have on their own. A phrase that I use here is, “You can catch lightning in a bottle and it can explode.” Some of the brands and clients that we’ve worked with over the years have gone through an explosion that’s very exciting. Jantize is up to almost 300 franchises in three years, which is remarkable growth. It’s the exception, not the norm, but it’s a possibility that could happen.

Could any business that provides a service theoretically be franchised, or are there certain business types that just aren’t suited for it?

In my experience, almost every business in every business sector has the ability to be franchised. There’s nothing that says, “Well, you can’t be franchised.” What’s important is that there’s an operating prototype that’s profitable. If someone buys a franchise from you, can that person make a living running that business?

You also have to feel comfortable that the success of your business is not an anomaly — like your business just randomly works because you’re this amazing superstar. If you were to disappear, would the business fall flat or die out?

That’s a very broad standard to start with, and then we can break it down further. Is the business something you can train someone how to run in anywhere from one day to two months? Is there, at minimum, a regional consumer base for your service or product?

Then we look for a return on investment for the franchisee. It takes a couple years for a business to break even and become cash flow positive. Can this franchise provide, typically, a 20% return on cash-on-cash investment after the second year? And after that second year, can the owner-operator make a manager’s salary plus that 20% return on investment? If so, there’s no reason that business can’t be franchised.

What are the first steps a business needs to take to become a franchise?

The first thing we always recommend is to have an initial consultation with a franchise specialist. At its core, franchising is a method of distribution, and it may or may not be the best method to expand and grow your business. Our company offers free consultations to businesses of all shapes and sizes that are considering the idea of franchising, and part of our service is to evaluate and make a recommendation as to whether or not we think franchising would be a good fit for them.

Most companies have never franchised before, so our role is to hold their hand through the process if they decide to move forward. We start with the strategy and building out a franchise plan, where we identify the financial drivers of the business — answering the who, what, when, where, why, and how first — and then build that into the franchise disclosure document, the franchise agreement, the operating manuals, and finally a marketing plan and franchise marketing collateral. We also get our clients connected with an attorney that specializes in franchising, which is an essential part of the process.

We believe that the legal documents define the business, but we don’t believe they drive it. We have to establish what those drivers are first, and then they can get documented into the business. We determine that with comprehensive cash flow analysis, five-year cash flow projections, competitive benchmark analysis, and many other things that go into building out a 40 or 50-page business plan that’s specific for franchising.

What does it cost to turn your business into a franchise, from start to finish?

It’s a fairly wide range. There are the do-it-yourselfers out there who will try to keep their costs down, and there are those who hire professional experts in the field to support them. Your cost for developing and putting together the franchise program will vary depending on the type of organization you work with, and it could range anywhere from $15,000 to $100,000. Some attorneys will charge up to $50,000, and then there are others that charge a fraction of that, depending on their pricing method.

But having the documents is just getting to the starting line. Now you can actually run the race. Our company’s stance is that we try to keep our upfront fees on the lower side, so that our client can focus most of their spend and investment on what we believe is most important, which is the marketing side of the business. We recommend that you spend your effort on gathering and securing leads, whether that’s through Internet marketing, trade shows, publicity and PR, or other marketing sources.

A rule of thumb that I tend to use is, whatever the client spends to get their documents up and running, plan to budget roughly double that for your marketing. If you spent $40,000 building your franchise program, then plan to spend another $40,000 over the next 12 to 24 months on lead generation to get the phone ringing and emails coming in.

Tom DuFore is the President and Founder of Big Sky Franchise Team, where he is responsible for the oversight of Big Sky Franchise Team and consulting with and advising Big Sky clients.

Tom has personally worked with and advised hundreds of businesses ranging from the largest companies in the world to start-ups. Prior to starting Big Sky Franchise Team, Tom spent ten years as a Franchise Consultant working for multiple international consulting companies.

He also served as the Vice President of National Business & Franchise Development for the Rabine Group, a National Facilities Maintenance Construction Company with 15 business units. In his role he oversaw companywide Sales, Marketing, and National Expansion initiatives, helping the company expand from $125MM to $185MM in annual revenue in just two years.

Tom helped the Rabine Group become regionally and nationally recognized three consecutive years as a Crain’s Fast 50 Company, and an Inc. Magazine 500|5000 Fastest Growing Company in the United States.

Tom has been a guest speaker at the International Franchise Expo, International Food Service Show, Chicago Treasury Office Business Expo, and the Franchise Expo South. He holds a B.S. Degree in Management from Elmhurst College, and an M.B.A. degree from DePaul University’s Kellstadt Graduate School of Business.

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