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How to Know If Your Business Is Franchisable

By Joe Tagliente

The old saying in franchising is, “Every business can be franchised, but not every business should be franchised.” Here are a few fundamental things that need to be in place for a business to be successfully franchisable.

The Leadership

What is the management team like? Are the founders passionate, and obsessively focused? Do they operate the company very, very well? Are they smart and reasonable people to work with? The quality of the leadership team is critical.

The Product

How much do you like the product? If it’s a food product, do you like eating it? If it’s an automotive business, do you like having your car serviced there? Your franchisees have to be excited about the product. The best franchisees are the people who come in as customers of your business and say, “Oh my God, this is so good. And I can buy this business? I can own this company? Well, I’m absolutely going to be a franchisee.”

The Opportunity

How big is the business opportunity? Can it be expanded significantly? Not every business can be expanded nationally, even if it can be expanded regionally. Case in point: There are a couple of restaurant concepts that I’m analyzing right now with my partners — farm-to-table restaurants that will be fast casual dining. And although they’re wonderful concepts that could potentially be great regional chains, the purchasing and distribution of the supplies and food and produce is going to be a logistical challenge. A concept like that serves the public well and there’s a niche for it in the market, but it might be hard to actually put the infrastructure in place to execute it.

The X-Factor

Does this business concept have a particular mojo that defines it and makes it competitively advantageous over any potential competitors? In other words, does it have some sort of “special sauce” that makes it so strong that even if a copycat comes along, they’ll never catch up? If you find a company that has that strength — that mojo — it’s a great franchisable concept.

The Profitability

If you’re wondering if your business is franchisable, you need to start managing your business as if you were a franchisee. First, take your current P&L and run it through a franchisee filter: Here are your sales and here’s your profitability. Now make a line-item deduction for royalty and advertising costs every month, and see what the profitability of the business is after that. If you’re going to charge your franchisees a 6% monthly royalty, but every month they’re only making 4% of the bottom line, that’s a business model that’s not going to work. But if you’re charging them 6% plus 1% for advertising and they’re pulling in 10-15% to the bottom line, that franchise concept is going to explode.

Stay tuned for more franchise business tips from Joe Tagliente.