When you are looking to start a business, it’s easy to become overwhelmed. Without a specific idea in mind, the wealth of available business opportunities can make it difficult to hone in on an idea that would be profitable, enjoyable and fulfilling. From franchising your existing business to becoming a franchisee to investing in a turnkey business opportunity, there are numerous ways to grow a company or become part of one that is already successful. Proceeding strategically and weighing the pros and cons of all your business decisions is essential before you move forward. In addition, working as part of a team or consulting with mentors can go a long way toward ensuring your success.
How Do You Franchise a Business?
If you already own a business and think that it might be successful with additional branches or locations, you might be considering the option of franchising. You may be wondering, "What are franchise opportunities and how do they work?" Simply put, franchising means that other individuals can pay your company to license its name, trademarks, products or services. For instance, if you own a successful frozen yogurt shop, you might decide to franchise it to other people. An entrepreneur in the next town who has observed the success of your store might take you up on the opportunity, choosing to pay you a large sum of money for the rights to open their own frozen yogurt store using your recipes, brand name and marketing tools. Since you will be getting paid for this privilege, it can be a lucrative way to expand profits and build your business. Some franchise agreements involve not just the upfront cost but also require that additional locations of your company pay you a share of their profits.
To successfully franchise your business, you will need a clear-cut plan for how investors can start their own branches and meet with success. You’ll need to provide them with marketing materials, branding and a system for operations. Without this, they might not meet with success, which could, in turn, hurt your brand.
There are generally two types of business franchising options. The first, called Business Format Franchising, means that you would provide the franchisee with your trade name, products and services, as well as a well-thought-out system for operating the business. Franchisees will expect to receive everything from site selection guidance and development support to operating instructions, training, brand standards and advisory services. This scenario is common with businesses like restaurants, for instance.
The second type of business franchising is called a traditional franchise, which can also be thought of as product distribution. This scenario is less focused on selling and more on manufacturing or supplying products. The bottling industry is an example that commonly follows traditional franchising practices.
Before beginning to franchise your business, think about the type of franchise that would be most effective for your industry. Then, carefully outline every aspect of your company as you would for a business plan. You’ll need to provide potential franchisees with every conceivable detail to ensure their success. It’s also wise to consult an attorney at this stage in the process, to verify that the plans you have are legally sound. If you have an accountant or financial advisor, now is also the time to set up a meeting to discuss your intentions.
Put out a call for franchisees, but be sure to allow plenty of time to interview candidates. If you run a successful enterprise, it’s likely that you’ll meet with no shortage of qualified individuals with plenty of available capital. However, you need to find candidates who have the right background and skill set to succeed in your industry. Additionally, it’s essential that franchisees be motivated and have a moral code that aligns with what your company stands for.
Remember that the most important aspect of franchising is growing your brand. As such, decisions like who you choose to align yourself with are critical. Picking the right franchisees who believe in your brand and have the know-how to help you further your mission is essential. Working with brand partners who don’t quite have what it takes can soil your hard-earned reputation, no matter how wonderful your company was before you started to branch out.
Selecting the locations that will yield the most success for your new franchises is essential. You’ll want to do a great deal of market research and study business trends in the areas you’re considering before making any final decisions. After all, the success or failure of your additional locations will ultimately serve as a reflection of your company.
Be strategic in all franchising decisions and seek the guidance of those who have followed a similar path before you. Attend lectures, conferences or local entrepreneurship meetings whenever possible and align yourself with a mentor. Learning from the mistakes of others and gaining connections is critical to your success.
Lastly, stay involved with your franchises. Work just as hard to build them up as you did when you were first growing your own business. It’s essential to the reputation of your brand that additional locations succeed, so strive to become a partner to your franchisees until they have things running smoothly on their own. Perhaps limit the number of franchises you’ll permit at any given time to stay on top of what’s going on and ensure the best possible growth.
Becoming a Franchisee
Just because someone has already built a successful brand doesn’t mean the road to huge profits is clear when you become a franchisee. Taking part in an existing company’s growth story means working just as hard as if you had started the business yourself. You will need to align yourself closely with the company’s leadership to understand the brand, vision and techniques of the existing business. From there, and with the help of a team and your mentors, you can work towards modeling the same patterns in your franchise.
Before becoming a franchisee, consider whether you are prepared to take on the high startup costs and additional profit-sharing or other fees that go along with owning a branch of an existing company. Also, ask yourself if you’re comfortable following strategies and marketing plans developed by the company’s leadership. As much as the franchise will be your own, you won’t have a huge amount of autonomy. Instead, you’ll have to abide by any rules set by the owners.
You should also be prepared to ask the owner of the company several tough questions. They should be able to share details of the profits of similar franchisees to give you an idea of what is possible. Furthermore, they’ll need to be completely candid about the business and how it’s doing. If there are big plans for changes in the future, you’ll want to be let in on those, too. The more information you have, the easier it will be to determine if this opportunity is the right fit for you.
It can be helpful to speak with other franchisees for the company you’re considering. If the business leaders don't permit you to do so, take it as a red flag that they are hiding something and seek out other opportunities. If you can meet with other franchisees, ask them their impressions of working with the brand and how much support they receive. This can be a valuable insight as you weigh your options.
You might wonder, "How much does it cost to franchise a business?" Costs vary widely depending on the notoriety of the brand you are hoping to become a part of. For instance, major fast food chains often charge $2 million upfront plus require that franchisees have $5 million in liquid assets before they are even considered. For others, like popular fast-casual sub shops, you might need only between $100,000 and $200,000 to be considered for a franchise owner.
Of course, these costs can only be considered alongside how much money you might make owning a franchise. While profits are heavily dependent on your industry, the brand you’ve aligned yourself with, the market in your area and your business savvy, your income may not be as high as you think. The average franchisee earns a profit of only $66,000 per year. More specifically, around half of restaurant franchises earn profits of less than $50,000 a year, and less than 10 percent hit $250,000. It’s for this reason that you must consider carefully how invested you are in aligning yourself with a brand and making things work before you agree to be a franchisee.
What Is a Turnkey Business Opportunity?
Perhaps you’ve decided that becoming a franchisee isn’t right for you. While you love the idea of working for a company that you don’t have to start completely from scratch, you want a bit more autonomy than you’d receive if you had to abide by the rules of an existing brand. Turnkey business opportunities provide the unique combination of companies that are already built and the freedom to make your own decisions down the line.
Essentially, a turnkey business can be defined as one that is ready to use. This could be a restaurant that has all its equipment and a full staff, but an owner who wishes to retire. If you were to purchase the establishment from the current owner, you would be able to walk in on your first day and serve meals to customers. By being classified as turnkey, a business can’t require any additional work or have any missing pieces. It’s ready to operate as is.
That being said, once you are the owner of a turnkey business, it’s within your rights to make any changes you wish. In the example of a purchased restaurant, you would be free to change the color of the logo or even the name of the establishment. You could hire a new chef, change the menu or renovate the restrooms. These freedoms do not always exist when you are a franchisee.
Another benefit to a turnkey business is that once you have purchased the company from its previous owner, it is yours to do with as you wish, and all corresponding profits become yours, as well. Though the upfront purchasing cost might be higher than if you were buying a franchise, you will not have to share profits or pay monthly fees. Any money you earn above expenses is yours to keep.
In some instances, a direct sales or multi-level marketing company, like those that sell kitchen or skincare products, can be considered turnkey businesses because you own your inventory and any profits are the difference between your supply costs and the price you sell your merchandise. In most instances, you do not have to pay any monthly fee or franchising cost to become a salesperson for a direct sales or MLM company.