Your Business Could Be Part of
2006 Franchise Growth
By Steven M. Bush
In late 2005 and early 2006, the
International Franchise Association conducted an e-mail survey of its member
franchise systems, and most of the respondents said that they expect their
system-wide sales to grow this year. Most also said that they expect the
number of franchise units to grow this year.
Almost ten percent of the
respondents to the survey were involved in quick service restaurant
franchises. While the International Franchise Association includes many more
quick service restaurant franchisors than were represented in the survey
responses, these responses suggest that restaurant franchise businesses
expect growth in the current and upcoming year.
If you operate a successful
restaurant business, do you know if your restaurant business is a good
candidate for franchising? Review the following characteristics to see
whether your restaurant business shares some of the characteristics of
successful franchise businesses:
1. Do you have a unique recipe or
use an innovative marketing approach or business method?
Can you differentiate your recipe, marketing or
business method from the competition? Can you sustain this difference? If
you have competitive advantages, things that may include your restaurant
identity, logos, marks, tag lines, trade secrets and confidential business
information, you should protect them as fully as possible. Federal and
state trademark registrations are an important piece of this protection.
Your agreements with your key employees should contain restrictions to
protect your confidential information, trade secrets and intangible
property. You will need to be able to assure a potential franchise buyer
that the intangible property that they will be paying you to use can’t be
easily copied.
2. Do you operate more than one
location? Is each location successful on its own?
While not an absolute necessity for selling
and supporting successful franchises, having more than one location, each of
which stands on its own success, will let you easily demonstrate that your
restaurant concept stands a good chance of succeeding in other locations.
3. Can your systems be
duplicated?
Can you describe your methods and practices with enough
detail so that a person who has little or no restaurant experience can learn
how to run your restaurant in two or three months? In order to sell and
support a single successful franchise, you will need to have in place one or
more operations manuals that contain, in writing, all of your proprietary
operational and management methods. You and your franchisee will use the
manuals for training the new franchisee, and you will use the manuals to
help enforce your quality and operational standards. Sales of more
franchised outlets will depend, in part, on your ability to maintain and
improve the image and success of your overall franchise.
4. Are you the most valuable
player?
You already know that every successful restaurant depends
on good employees. But, if your record of success depends on you personally
showing up every day or on your individual expertise you may not be a good
franchising candidate. In order to sell your business as a franchise, you
will have to demonstrate that a new outlet can generate consistent
profitable returns without hiring you.
5. Do you consistently make
money?
One of your goals as a franchising company will be to help your franchisees
enjoy financial success. Every buyer will be willing to pay an entry fee to
learn and use your secrets, but that person will expect to make money too.
Some consultants start with a rule of thumb rate of return of 20 percent. If
you expect that your franchisees will actively work in the restaurant
business, they will pay themselves a salary before measuring their return.
Keep in mind that they will measure their return after subtracting royalties
that they will pay you.
6. Are you willing to start a
completely new business?
If you are good at starting and running a successful
restaurant business, offering franchises and providing support to
franchisees will seem like a completely different business. You should go
into franchising with the clear idea that franchise sales and support is a
distinct business from your restaurant business. If you are not clear that
franchising is a new and separate business, expect upheaval, turmoil and
distraction in your restaurant business.
7. Are you a coach, teacher and
therapist?
Franchising may put you in roles that you have not
previously performed in your restaurant business. In franchising, you will
be a teacher, counselor, psychotherapist, spiritual advisor, hand-holder and
cheerleader. If you are not suited to these roles, or if you’re not ready
to perform all of them, you should be prepared to include someone on your
franchise team who can fill them.
Some other things you should
consider include: Can you recruit any existing employees into the new
franchising business? Can you and your employees share their successful
methods with new franchisees? Do you already have employees who can sell
franchises or who can support franchisees? If you already have these types
of employees, can you afford to switch them to a new line of business?
There are a myriad of legal and
business requirements and conditions that anyone considering offering
franchises must satisfy before seriously considering franchising. However,
the starting point is whether your business is a good candidate.
Steven M. Bush of the Bush Law Firm
has more than 20 years of legal, business and tax experience. He also
developed and sold the successful Mr. Handyman franchise. Steve can be
reached at 303-831-1411 or steve@bushlawpc.com.
