Franchising: When is it time to Expand?

So you are probably wondering what I am getting at? Well, I hear stories all the time and have been asked questions like when are you opening a new store or when are you opening in this market? It’s amazing how many times I have seen people and companies get too caught up in growth and whether they realize it or not and perhaps not intentionally, they let their operations slip. Growth is only as good as if you are profitable and have the right structure in place.   

Your franchisees deserve the proper support. They have made a large investment for a reason. Companies who sell franchises for the fact of expanding faster can face tremendous challenges in both short and long term. Some questions to ask yourself first before selling a new market:

  • Do I have the right team in place?
  • Can I provide support to the new market?
  • Do I have an adequate amount of positive cash flow?
  • Are the franchise prospects the right for us?
  • Do I have the right location?
  • What is the upside for the company to expand now?

So let’s take a look at each question. Do I have the right team in place?  This requires you to be critical of the team. Is there a weak link currently on the team? If so, what plans do you have in place to change that? Can you replace that member in time, if not are you willing to take the risk to move forward and possibly damage your reputation? You also should stand back for a moment and ensure you have the right people to cover each of the areas; operations, marketing, training, branding, construction and all the other areas to successfully open a new store.

Can I provide support to the new market? Do you have enough people on the team to successfully provide support to your franchisee? It’s one thing to just open a store. The bigger question is can you do it well and offer ongoing operational support. Support can also mean resources in terms of suppliers. Do you have the proper supply chain in place?  Without food, you have nothing.

Do I have an adequate amount of positive cash flow? Cash is King as some people would say. Without it, what do you have? Take a look at your current financial position?  How stable is the company? What are your future plans?  Are there areas in the company that need immediate improvements?  These can include repairs, renovations, adding additional team members, investing in better training materials and tools.  All this takes time and money. This leads to my next point of finding the right franchise partners. 

Are the franchise prospects the right for us?  It’s easy to be tempted to sell to everyone. You could be one of those companies that are receiving a consistent number of weekly franchise applicants or you could be the opposite and receive one every other week to the point you feel it’s necessary to sign on a new franchise prospect.  It doesn’t matter what scenario you are.  Bottom line, do your homework. Take the time to conduct a thorough financial credit check.  Even the best of people can be hiding something.  So be safe and conduct a criminal check too. Second and perhaps the most important, does the prospect have the passion and willingness to invest their time to make the business succeed. Don’t trust everything you hear in the beginning.  The consequences you could face are a failed market, a potential lawsuit, and lots of lost cash. Take your time to evaluate your potential franchise partner.

Location, location, location – Do you have the right location?  You hear it all time. Location is everything.  You may have a great product and great service, but if you have a bad location, you will have a lack of customers and sooner or later, you may close. Do you have a reputable real estate broker?  Ensure you carefully study the market and the area.  Visit your competition in the area. How well do they do? Ensure you are satisfied with the traffic and sales potential before you approve the location.

So what is the upside for the company to expand now? Again, I can’t express enough how many times I have seen and heard companies agree to sign on a new franchisee without thinking twice about it.  I have also seen and experienced the challenges for expanding too quickly. As long as you have gone through the steps of answering each of the questions I have highlighted and feel confident that you have all your tracks covered then expansion may be right for you.  These are only some key points to lookout for. Look at the market you have been proposed?  Will there be further future development in that market?  Are there other markets that can benefit from that market expansion?  Have you secured AAA store space?  Perhaps, you have been approached by the right partners that bring restaurant and operation expertise to get you the company to the next level.  Just remember, to consider all factors. 

Don’t get caught up with the idea of expanding too fast. There will always be time to expand.  Focus on the problems at hand first and make it a practice to involve your corporate team.  Listen to them as more than likely you can learn a thing or two.  Once you have acknowledged any concerns and corrected any problems, you can re-evaluate if expansion is still right for you. It’s critical that you have the Right Team, Right Partners, Right Location and Enough Cash. If you don’t have one of them, then think twice about expanding.





If you enjoyed this article, get free restaurant tips via RSS Reader or delivered to your inbox!

Leave a Reply