DEEP DIVE 

What to Consider Before Franchising

One of the biggest compliments an entrepreneur can receive is a customer’s question, “is this a franchise?”  The inference is that the business has an amazing service or product that should be offered across the country.  Most successful entrepreneurs will be asked this question.  Having worked with emerging franchise concepts over the last ten years, I have received many requests and introductions to entrepreneurs who want to understand the good, the bad, the ugly when it comes to franchising.  The initial question of “is this a franchise?” compels the entrepreneur to ask “should I franchise?”

Franchising can be a lucrative and effective way for a business to expand its reach and increase revenue streams.  However, not every business is suitable for franchising, and it’s important to consider the following three criteria if you are considering franchising: (1) profitability of the business, (2) operating history, and (3) industry growth. 

It may seem obvious but showing a healthy and profitable business is paramount if you want to franchise your business.  That means the business should be profitable AFTER you add in the royalty, brand fund, and other recurring fees.  One impediment I have witnessed with multiple businesses is the lack of financial control within their business.  Personal expenses, exorbitant owner salaries, and expenses that would be assumed by the franchisor (e.g. creative assets, website costs, etc) should be carved out of the “4-wall” profit and loss statement.  The goal is to reflect how a franchisee should run and account for their business. Depending on your industry, the business should yield 10%-30% profitability (after franchise fees) with an expected payback on the initial investment of 3-5 years.  If a business model can exceed 30% margin and a payback period of less than 3 years, then you have something very special to offer. 

The second consideration is that the business should have a sample size of operating history and/or number of locations.  A business that has operated for a short time may not have the necessary data to support successful franchising.  Franchise candidates want to see a record of success before investing their time and money in the business.  

The second consideration also takes into account that the business should have made a lot of mistakes along the way.  Ernest Hemingway believed that, “the first draft of everything is sh*t”.  This is true with the launch of any new business.  This is a major reason that people turn to a franchise opportunity.  They want to invest in a business that has taken steps to learn from those mistakes and make improvements.  This includes having a solid operations manual, training programs, and support systems in place for franchisees.  

The final criterion is that the business should be in a growing industry.  Franchising is a long-term commitment, and it’s important to ensure that the industry has long-term growth potential.  It’s a much easier process to recruit franchise candidates in an industry that can demonstrate an increase in market share in the coming years.  Pet care, wellness, beauty, and home improvement services have all experienced significant growth due to the post-COVID recovery.  Mature industries like restaurants can still create micro-trends like the “hot chicken” craze or plant-based offerings where franchise restaurants can capitalize on the changing customer preferences.  

Franchising is not the only route to growing your business, but it can be a lucrative venture that would allow you to reach markets that you would never have dreamed of tapping into.  The franchising route is not a “get rich quick” strategy. While speed to market is a common reason to pursue franchising, the best franchise concepts have taken a long-term approach in regards to their growth strategy.  Those businesses can confidently point out their profitability, history of success, and long-term opportunity.  

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FRANCHISE HEADLINES

Changing Its Stance, Domino’s Inks Delivery Partnership With Uber Eats

After years of holding out while Papa John’s and Pizza Hut jumped into third-party delivery, Domino’s—the world’s largest pizza company—has signed a deal allowing U.S. customers to order its products through the Uber Eats and Postmates apps.

Uber Eats will be the exclusive third-party platform for Domino’s in the U.S. until at least 2024. The initial U.S. rollout of the agreement will begin this fall in four pilot markets, with ordering on the Uber Eats and Postmates apps anticipated to be enabled across the country by the end of 2023. 

With New Master Deals, Canada’s BarBurrito Makes Big Push in U.S. Markets

BarBurrito has entered into master franchise agreements in North Texas and Florida and signed area development deals in Hawaii and Houston, all under the name of BurritoBar USA, as the Canadian Tex-Mex food franchisor looks to make a huge presence in the U.S.

Jeff Young, the chief development officer for BarBurrito and BurritoBar, said the agreement signed in Texas calls for the development of 150 stores from north of Austin to the Dallas-Fort Worth metro area over 20 years. The deal is with newly formed franchisee group D Burrito, led by Jag Dhillon. The agreement with Ahara BB in Florida calls for the development of 90 locations throughout the state in 20 years.