By Rieva Lesonsky
When an entrepreneur’s business is successful, it’s common to start thinking about expanding—and rightly so. Expanding your business to more locations is a natural way to build value in your company. And it’s always a good sign when customers ask when you’ll be opening a location closer to them. Before you apply for a small business loan or business line of credit to expand, you need to decide whether you want to open more locations on your own or to begin selling franchises.
A chain of businesses means you own and run all the locations. Of course, you can hire managers to run each location, but you as the business owner are ultimately responsible for all the locations (and you reap all of the profits). Franchising your business involves selling the rights to use your business name, methods and system of doing business, and then providing ongoing training and support. Investors (franchisees) pay an initial franchise fee and ongoing royalties.
Here are four things to consider before deciding how to expand your business:
1. Money: If you have the working capital (or access to it) you might be able to open a chain of businesses and run the additional locations yourself. If you decide to franchise, franchisees must front the money to open their locations. But it isn’t that simple. Franchising has many regulatory and compliance costs, plus you’ll need to hire staff to run and market your franchise system.
2. Laws: Franchise businesses are regulated by the Federal Trade Commission (FTC) and state governments. You need to prepare a Franchise Disclosure Document (FDD) before you consider selling franchises. The document includes all the information about the franchise and your business’s financial statements. You may need to file the document with your state.
3. Locations: If you eventually want to expand your business nationwide or even worldwide, you might want to lean towards franchising to achieve your goal. Managing a chain over a wide geographic area is complicated, but if you just want to open a few more locations in your city or state, a chain is a good start. You can also consider expanding by starting a chain and selling a few franchises to test the waters.
4. Help wanted: Whether you launch a chain or start franchising, you’ll need a lot of expert help to help make your expansion dreams come true. Before you make any move, take a look at the people on your team and assess who can take charge of your current business while you’re researching and exploring your expansion options. You don’t want your current business to suffer while you’re expanding. If you decide to franchise, make sure you get a franchise attorney who is experienced in your industry and talk to franchise experts to find out all you can.
Rieva Lesonsky is CEO of GrowBiz Media, a media and custom content company focusing on small business and entrepreneurship. Email Rieva at firstname.lastname@example.org, follow her on Google+ and Twitter.com/Rieva and visit her website, SmallBizDaily.com, to get the scoop on business trends and sign up for Rieva’s free TrendCast reports