Could You Be The Next McDonald’s?
In the US, franchises of one kind or another now operate in a staggering 75 different industries. Even in New Zealand, where franchising has only really been established for 15-20 years, we have franchises in everything from machine tool re-tipping to animal pregnancy testing.
But as well as the huge success stories there are also sorry tales of franchises that didn’t quite take off, or of those that flared briefly before fizzling out – sometimes taking their franchisees with them. So how can you tell if your business is suitable for franchising?
The first area to consider is the financial one. Franchising is not a source of instant income for the franchisor. It requires substantial investment during the set-up stage and, even once the first franchisees come on board, sufficient funds to provide for training and supporting them until they are generating enough revenue to fund the services you will need to provide. You therefore need good capital reserves and ongoing cash-flow to fund your franchise programme.
In addition, you have to be certain that there are sufficient returns in your business to make it able to be franchised. You will need healthy gross profit margins that provide a worthwhile return on their investment for the franchisee, while enabling them to pay fees or royalties to fund the services provided by the franchisor - and a profit contribution for the franchisor too…
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