Franchising Your Small Business - the Fly Speck Part Six

How Much Does it Cost?

It is estimated that the cost of establishing a franchise can be in the neighborhood of $500,000 - so, get it right and keep in mind where franshising does not work so well. It does not work well for example in the grocery business because of narrow profit margins and it doesn't work well in the heating contractor business because the expertise is tacit knowledge.

"In general, three factors make a business appropriate for franchising: The business is based on a proven system for serving end customers; that system can be reduced to a set of operating rules that can be transmitted to others in written form; and there are enough potential buyers of the concept to make it worthwhile to invest in the up-front costs of setting up a franchise system." - Shane

The idea of creating a franchise is that you are providing a system to franchisors that is better than a system they could start themselves. You have already moved up the learning curve in how to provide better customer service, how to provide a better product, etc, and you have the system documented.

"To franchise your business you need to be able to write down the rules and procedures to operate the business, as well as to train others in that system. Operation of your business will provide you with an understanding of the standard processes and procedures to make your business work. Having this understanding will facilitate your ability to sell the system to other people." - Shane

So, essentially, you have to walk your talk. You have to be involved in the business from the get-go in order to figure out what the best practices are or how to do the work efficiently. And in the end, you are selling the system and you will be able to sell if you know why it works.

You Must Be Able To Transfer the Sucker

Your business must:

1. Be easy to replicate.
2. Easily be reduced to written rules and procedures operational-wise.
3. Teachable to anyone and everyone in a relatively short period of time.

Codification Has Nothing to do with Fish

The folks running the franchise have to be able to make decisions based on the written rules and procedures without the owner's involvement. If they couldn't then the franchise owners would get pulled into numerous issues as the franchise grew - an impossible situation. Also, codification leads to contracts which means the folks running the show can be measured as to how well they are matching up to the franchise objectives.

"If you are thinking of franchising a business, you should try to write an operating manual for your business. If you can't do it, that is a signal to you that you might not want to try franchising. There is no way for you to franchise your business if it can't be reduced to a set of rules put down in an operating manual." - Shane