Assessing whether to franchise

The following is a franchising checklist:

1. The business should be proven and profitable before franchising is considered.

2. At least two company-operated locations should be developed and operating profitably to prove the viability of the business model in multiple locations.

3. The businesses should be operated under management to test the operating and reporting systems.

4. The businesses should be returning at least 20% on capital invested.

5. The market in which the business plans to operate should support at least 20 business units.

The last point is important, as the mathematics of franchising will not support the investment of time and money and infrastructure necessary to develop a franchise system that cannot scale beyond at least 20 units.

Franchising does not mean abandoning the growth of a company-owned network. Every business should operate as many company-owned units as it can afford to finance and operate profitably. Ultimately, franchising should not replace the development of a company-operated network but be considered a growth strategy to complement it.

In a limited market like Australia where few networks grow beyond 200 units, the combination of a core of company-owned units supplemented by a network of franchised outlets is the ideal business structure. The operation of company-owned locations contribute critical cash flow and profitability, keep the franchisor close to the marketplace, and provide a fertile base to develop staff, train franchisees, trial new products and services, and innovate with new locations and presentation.

Franchising is both a sophisticated capital management plan and in today's employment environment, it's a key HR strategy to attract and retain motivated owner-operators at the customer end of a business.

*Rod Young is executive Director of DC Strategy, and can be contacted at This email address is being protected from spam bots, you need Javascript enabled to view it

* The opinions expressed in this article are those of the author, and don’t necessarily reflect the opinions of DYNAMICBUSINESS.com or the publishers.