Craig Tractenberg of Fox Rothschild.

To paraphrase Benjamin Franklin, “Those who fail to plan, plan to fail.” That is true in any business, but particularly so in franchising. The reason that planning is more important in franchising is because franchising leverages a business, which expands the horizon of the brand more than a single owner or operator could. Decisions on branding need to balance the effects on employees, franchisees, prospective franchisees and customers. Without proper planning, the brand will grow randomly, without alignment, and will never achieve the momentum necessary to grow exponentially.

Is the Business Qualified to Franchise?

When asking whether a business is qualified to franchise, the question seeks to answer whether there is a sustainable business that could be operated by others through proper training. The business concept needs to be on an upward trend and projector. If the business is merely a fad, it is not worth the investment of time, money and opportunity costs to expand a novelty that will soon evaporate.

The business needs to be capable of being converted into a systematic and replicable business. A franchise business needs to be taught to others so that they can expand and replicate. The know how needs to be recorded and encapsulated. It cannot be readily copied merely by someone looking at the business from the outside. The business operation needs to have a little mystery and magic. The magic, secret sauce or formula for success needs to be carefully guarded from competitors and will require legal protection.

Does the business have operating units which are profitable? The more profitable and the more units which are operating profitably, the better the franchise system will be. A single location can be franchised successfully, but multiple locations which are profitable demonstrate that while location is a variable, the formula for success can work in multiple places, with multiple crews, and much of the problems in the system have been identified and fixed. The more locations which are working, the higher the probability that the franchises will be established without unexpected obstacles.

Does the company have the staff to launch a franchise system? Running a franchise system requires a sales function to qualify and process prospective franchisees. The franchisees will need some hand holding and will need training. Some may be investing their life savings and need franchisor leadership to make the investment. After the investment is made, the franchisee needs to be motivated. The franchisor needs to be a leader and must instill confidence. If the staff or people cannot fulfill these needs, then the franchisor needs to hire or contract for these people to run the franchise company.

Does the Company Have the Money and Energy to Invest in Franchising?

Franchising costs money, but the money is a good investment because franchising has so many positive attributes. Franchising allows franchisees to share in the brand success, provides rapid growth, faster brand recognition with less oversight over the franchisees. The legal foundation for the franchise business structure needs to be properly prepared and that requires an investment in legal work. But wholly aside of the monetary investment is management's time commitment in establishing the franchise structure, qualifying, training and supporting the franchisee. It requires an investment in legal infrastructure and investment in the people necessary to support and grow the franchise system.

How Big Is the Market?

Many franchised businesses do well by having a narrow niche, but the best companies find ways to broaden the interest. Think about how a mere name change can broaden the business. “Boston Chicken” changed to “Boston Market” to capture customers whose meal preferences did not include chicken.

Write and Test the Business Plan.

Write the business plan. Answer all of the questions that someone critiquing your business might ask. Contemplate various sources of grants, investment and funding. Each has positives and negatives, but all should be considered because your franchised business will not be static. Consider various avenues of growth, and the effect of competition. Commit it to writing so that you are disciplined and deliberate about it. See if anyone else is doing it the same or differently in another geography.

Test the business concept with a feasibility study, formal or informal. You can hire a consultant inexpensively. Ask a variety of people what they would be concerned about if it were their company. Business schools often offer counselling or review by students of new concepts. As these students may be your customers, take the opportunity for feedback. One of the main questions to ask is how can your franchisees make a reasonable return on investment.

Planning means anticipating problems and solutions. Planning and feasibility testing can be the difference in a successful franchise system and a failed dream. Good counsel, good accounting and good foresight avoid bad outcomes.

Craig R. Tractenberg, a partner at Fox Rothschild, handles complex business disputes involving intellectual property, licenses, business torts and insolvency issues. He focuses on franchise companies' development and expansion. Contact him at [email protected].