Scaling your franchise operation: what you need to know
Starting your first business is a huge undertaking, even when it’s part of an established franchise (this may actually up the pressure). But once you do, you’re likely itching to start scaling your franchise operations.
After all, you figured out the recipe to success for one location! It’s tempting to copy and paste that to another location. And another. And another…
However, your perfect recipe is harder to replicate at seven, eight, or more locations. The time to travel between locations is getting longer now that there are more of them. When one store needs focus, the others may fall to the side. Upfront capital is always tough to secure.
So how do you scale responsibly?
Here’s what you need to know.
Six Steps to Scaling Your Franchise Operation Responsibly
Let’s dive into each step required to scale your franchise operation.
Step One: Evaluate Your Current Business
The first step to scaling your franchise is evaluating your current restaurants — reviewing how they are performing, where you need to improve, and (most importantly) if you have the funds from your current businesses to keep a new location afloat as you ramp up.
Here’s how to evaluate your current franchise performance:
1. Review Historical Performance: Start by looking at financial statements to get a historical idea of how your stores have performed over the last month or years. This can include your profit and loss statement, balance sheets, and cash flow statements. This will give you a clearer idea of performance (and potentially reveal any glaring areas of concern you may want to address before expanding)
2. Assess Weaknesses: It’s never fun to look at what’s going wrong, but you know that putting your head in the sand doesn’t fix a business problem (how easy would things be if that did work!). Look at what isn’t going right for your business before expanding. This will help you minimize the chance of bringing these weaknesses to a new location.
3. Evaluate Competition: No doubt that competition is something you review regularly, but you want to do it again as you look at business performance. Have competitor franchise locations been popping up? Did you notice a certain chain closing more often? Note all of this.
4. Analyze Customer Feedback: Regularly review customer feedback, including online reviews and comment cards, to get a sense of how your customers perceive your restaurant. This will give you insight into your current performance. Is there a lot going on at your current restaurants that need improvement? If that’s the case, you may want to consider focusing your efforts to improve what you already have.
Step Two: Research Potential Expansion Markets
Now that you’ve evaluated how things are going at your franchise business and everything appears to be going well, it’s time to plan the best market for scaling your franchise.
You know your current market and neighborhood well. However, a few blocks over from one of your locations everything can be different. Take the time to evaluate different neighborhoods in your area and understand their demographic. This can include (but is not limited to):
- Average age of the areas
- Average income of the area
- Marital status
You want to ensure that the demographic of the area where you’re opening your next franchise location aligns with your target market. This information can also inform certain decisions you make about a new location. If you move to an area that has very little car traffic, for example, you may not want to spring for a state-of-the-art four-lane drive-thru because you won’t hit that automobile traffic.
Step Three: Develop a Marketing Strategy
A marketing plan is a document that outlines a company’s overall marketing strategy, goals, and tactics for achieving those goals. It typically includes an analysis of the company’s target market, competitive landscape, and strengths and weaknesses. The plan should also identify specific marketing objectives and the tactics that will be used to achieve those objectives.
Throughout the marketing plan, you want to break down tactics you’ll use to make people aware and excited about coming to your new location. This could include giving away a free meal to the first 50 guests on opening day or mailing out coupons they can use within the first three months of opening. The goal is always to get people through your doors one way or another.
Pro tip: You likely already do some marketing for your current locations that are in operation. Use past marketing successes and failures to fuel the marketing plan and decisions you make for your new business. It’s a shortcut to marketing success!
Step Four: Put Everything Together into a Detailed Expansion Plan
It’s time to build your expansion plan to continue scaling your franchise! Once you’ve done everything outlined above, you’ll have all the information you need to do so.
Your business expansion plan is a document that outlines the strategy you have for profitably growing your franchise operations to include another location.
Beyond what you have worked on to this point, you’ll also want to include a few other items in your expansion plan, including:
- Financial projections: This will include a detailed financial projection for your new location, including revenue forecasts, expensive budgets, and cash flow projections
- Operational plan: Your operational plan will outline the strategies and tactics you are using to expand your franchise successfully. This can include hiring plans, training programs, and any technology investments. Your operational plan can be largely based off other locations you have that are seeing success — you want to replicate that success, after all!
- Review of risks and a plan to manage them: There are always risks with any new business endeavor. You just need to show that you have a plan to tackle them. Review the potential risks associated with acquiring and running a new location as a part of your franchise group, and outline strategies to mitigate said risks.
Pro tip: As you expand, you want to find technology that expands with you. Look for companies that create products that cater to franchise businesses, like DTiQ. They all work with franchises regularly, so you know they can scale with you.
Step Five: Pitch to Investors
Step five may not be a necessity, depending on your financial situation, but it is an extremely important step for most — pitching to investors.
Opening a new franchise location includes a lot of upfront costs. You need to secure or build a brick-and-mortar store, renovate or decorate, hire and train a new team, and so much more before you even come close to making your first sale.
You can search for investors once you have a detailed plan for expansion, a marketing plan, and research to back up your expansion. These are all things that investors are going to ask about, so it’s better to approach them once you have a plan in place and you’re able to answer their questions. They’re more likely to invest in you if you appear prepared and confident.
Step Six: Legal Considerations
You already know that there are a good amount of legal considerations when it comes to opening a new location. You’ve done it a few times at this point, and it’s time to do it again. Some of the legal considerations you should keep in mind when expanding your franchise business include:
1. Franchise Agreements: When expanding your restaurant franchise, you will need to draft new franchise agreements with the franchisees. These agreements should include terms related to licensing, training, support, territory, royalties, fees, and termination.
2. Intellectual Property: Your restaurant franchise likely has valuable intellectual property, such as trademarks and copyrighted materials. You should ensure that your intellectual property is adequately protected and that your franchisees are using it properly.
3. Compliance with Laws and Regulations: You should ensure that your franchise business is complying with all applicable laws and regulations related to food safety, health, employment, taxes, and advertising.
4. Insurance: As you expand your restaurant franchise, you may need to review and update your insurance policies to ensure that you have adequate coverage for all aspects of your business.
Note this is not binding legal advice. There are lots of other legal considerations to consider. Speak with a lawyer who specializes on the legal considerations for scaling a franchise or opening new businesses in your state or province, as it can vary greatly between locations.
Final Thoughts on Scaling Your Franchise Operation
There’s a lot that goes into expanding your franchise business, especially as you move past seven or eight locations. You become a pro at some of these steps, but others can become trickier or larger as your business goes. The key is to ensure that your current locations are doing well, before diving into another endeavor.
If you’re looking for technology that can grow as your franchise group grows, look no further than DTiQ. DTiQ helps thousands of franchise businesses to thrive, giving owners high-level overviews of all their location performance. You can contact us or book a demo to see our technology in action — and how we can grow with you.
