One of the most common questions about franchising is, “Does a business need to be in operation before franchising?” Legally speaking, a business does NOT need to be in operation in order to franchise. You can franchise a business that is not up and running and there have been several franchise systems that have been started in this manner.
However, just because something is legally possible doesn’t necessarily mean it is the right business decision.
The reality is that when people buy a franchise, they are looking for a business that has already been proven to work. They want a system they can follow without having to reinvent the wheel. So even though you could legally franchise a business idea, doing so often defeats the primary reason people buy a franchise in the first place (take a look at “Why People Buy a Franchise“).
Why Most Franchise Buyers Want a Proven Business
Most people invest in a franchise because they want to reduce the risks associated with starting a business on their own from scratch. They want confidence that the products or services are in demand, the operating procedures have been tested and the business model has already demonstrated success.
That is why proof of concept is so important.
The longer your business has been operating successfully, the easier it becomes to demonstrate that your concept works and the more confidence prospective franchisees will have in your franchise opportunity.
If your business is still in the idea stage or has not yet established a proven track record, you may also find our article “5 Reasons NOT to Franchise Your Business” helpful.
Franchises Are Regulated
Franchises are regulated by the Federal Trade Commission (FTC) to protect the consumer against fraud. There are standards and regulations put in place that every franchising business must follow and these are more stringent than business opportunity laws.
This is one of the reasons why franchise opportunities are considered a safer type of business model compared to other business endeavors. This gives franchise systems the additional validation people seek. There are a few other states that take this a step further (learn about “Franchise Registration States“).
It’s All About the Franchisee
At the end of the day, franchising is not really about the business. It’s about the franchise owner (the franchisee).
Franchises are ready-made concepts for aspiring business owners. Franchises are unique business models that have been proven to work and can be easily transplanted into other markets. Add the fact that franchises are regulated, and you have the basic ingredients for success. There are currently more than 3,500 active franchise concepts in the United States across nearly every sector, from retail to food to service based businesses (to get an idea of the different types of businesses that can be franchised take a look at “Can Any Business be Franchised“).
You may have the greatest business idea in the world, but if you cannot provide a proven system to follow, your franchisees will struggle. The only way your franchise system grows is when your franchisees are successful. That is much easier to accomplish when you provide them with an established business model rather than asking them to help prove whether your concept works.
If you are still trying to determine whether your business is truly ready for franchise expansion, you may also want to read “How to Know if My Business is Franchisable“.
So, Should You Wait?
While the answer to the original question is technically no, the practical answer is usually yes.
Could you legally franchise a business that has never operated?
Absolutely.
Should you?
In most situations, probably not.
Building a successful franchise system starts with building a successful business. The stronger your proof of concept, the easier it becomes to attract qualified franchise owners, establish credibility and create a franchise system that stands the test of time.
Bottom line is that you can have the best concept in the world, but if you don’t have the right people, your franchise system can fail. The only way your system will grow is if your franchisees are successful and happy. This is much easier to do if you give them a system to follow rather than a good idea you believe will work.
For a broader discussion about when the timing is right, we encourage you to read “When, How and Why to Franchise Your Business“.
If you’re ready to explore whether your business is prepared for franchising, contact The Franchise Maker or call us directly at 1-877-615-5177. We’ll be happy to answer your questions and help you determine whether now is the right time to franchise your business.
- Risks of Franchising Before You are Ready
- What is Required to Franchise a Business
- How to Keep Franchisees Happy and Engaged
- How to Create a Successful Franchise
- See the Steps to Franchise Your Business
