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How to Know If Your Business Is Franchisable

2015-08-17

Minyang Jiang

Updated September 12, 2022

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.

The Team

Once you start putting feelers out that you’re interested in franchising, you’ll get inundated with companies promising they can do it the best, fastest, and give you the highest rate of leads and sales. Be sure you know exactly what you’re agreeing to and partner with a team that you trust and respect. It’s a long process and you’ll want to be with a company that knows what they’re doing and that takes the time to understand your goals and brand.

When you start building your internal franchise team don’t create positions to fit certain people. Create a position first, and then fill it with the right person. It’s often tempting to promote people into your franchise team who have been with you the longest or know your operation well. Make sure you know what is expected of the position before you promise it to someone or make a mistake that will hurt you and the person you were trying to reward.

Related: 6 Essential Resources for Franchising Your Business

All in all, when you decide to franchise you’ll want it done yesterday, but remember that it’s a process and it really is a whole new business. It’s a new level and a new game and you have to take time to learn the rules, learn how to play, and respect the process as a journey. Happy franchising!