Franchising 101: The 4 Stages of Franchise Growth

Modified on 15/01/2021 11:03:38 - Published on 12/01/2018 15:00:00

As a franchisee, your business will go through four distinct stages during its franchise growth lifecycle. We’re breaking down each one and offering some handy hints and tips to help you successfully navigate them. 

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Every business, whether it’s a franchise or independent business, will go through four phases as it grows, adapts and, potentially, declines over the years. While every business is unique and will experience growth at different speeds, this guide should help you identify which stage your franchise is in and how you can maximise its chances of success. 

1. The Start-Up Stage

The first stage of franchise growth is the trickiest one for any business owner to get through. According to Hiscox, 80% of new independent businesses will fail within the first two years of operation. 

As a new business owner, you’ll need to wear lots of different hats, from accountant to marketing manager to administrator. You’ll also need plenty of capital, as it can take up to three years for a small business to become profitable and be able to maintain positive cash flow to stop insolvency crushing your dreams.

Joining a franchise can mitigate many of the risks new business owners face. Fewer than 1% of franchised businesses close per year due to commercial failure and 93% report they’re offering profitably. The franchise business model offers much-needed guidance, stability and support at this initial stage, as well as providing you with operating systems, a brand name and marketing for you to use as a franchisee. 

If you’re feeling discouraged, remember that even the most profitable franchises and the biggest franchises were once in the difficult start-up phase. With plenty of hard work, dedication and patience, your franchise could become one of the thousands that enjoy long-lasting success. 

Top tips for your first year of business

Even if you become a franchisee, the start-up stage can still be a precarious time. To maximise your chances for success, make sure you’re:

• Invoicing clients promptly to stop your business becoming insolvent (running out of money). If you’re feeling daunted by the accounting side of being a franchisee, check out our previous article ‘Franchise Basics: A Guide for Understanding Accounting Basics’.

• Utilising your franchisor’s support as much as possible. Don’t struggle and do everything yourself if your franchise support team is ready and willing to help!

• Trying to spread the word about your business as much as possible to drum up plenty of new clients. Again, it’s likely your franchise package includes marketing, but make sure you’re supplementing this with your own social media posts, flyers and adverts. 

2. The Growth Stage

After around two years of business, your franchise will enter the growth stage - though the timescale can vary greatly from one person to the next. By now, you’ll have built up a modest customer base and are hopefully enjoying a sustainable income from your business that comfortably covers your overheads. But you’re not content to stop there, are you?

For ambitious franchisees, the growth stage is the time to begin scaling your business up. This is the time when you’ll want to consider taking on employees to help you keep up with demand and look into opening a new location or becoming a multi-van business. This period is when you’ll really begin to see a return on your initial investment.

Franchisees will often need to adapt their role at this stage to make sure the business continues to run smoothly. You’ll need to take a slight step back from day-to-day management and allow your highly-qualified employees to take over some of the responsibilities, meaning you can focus on the bigger picture and your strategic goals. 

Top tips for the growth stage

Though this stage of your business is likely to be less volatile, you’re not out of the woods. You should:

• Keep an eye on your cash flow. Consider using solutions like a business credit card or an overdraft to protect yourself against any delays in income. Insolvency can strike at any time, even if your business is operating profitably. 

• Maximise your resources. Make sure you’re getting as much as you can out of the staff and other resources you already have. If you need a manager, your internal talent pool could be the only place you need to look.

• Set clear goals. To stop yourself coasting along, set strategic goals that give you a clear focus on how to grow your business. If you’re looking for more information, articles like ‘10 Foolproof Ways to Scale a Business’ contain lots more advice. 

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3. The Maturity Stage

After you’ve been running your franchise for a number of years, you’ll become the proud owner of a mature business. This means you’ve established a large, loyal customer base and generate a healthy income that covers costs with plenty of profit left over. Cash flow is also likely to be strong, and you may have already started expanding into new locations. 

Top tips for the maturity stage

You’re probably feeling a lot more comfortable as a business owner by the time your franchise reaches its maturity stage. But if you sit back and coast for too long, your business risks becoming out of touch with ever-changing customer demands. This is the time to:

• Focus on how your business can expand or adapt. If you’ve always wanted to introduce new products/services or branch out to reach new customers, now’s the time to do it. 

• Keep an eye on competitors. Regular market research is an essential part of any franchisee or business owner’s role. Staying up to date with other businesses in your sector will help you keep up with trends and get fresh inspiration or perspectives on how to run your operation. 

• Think about the future. A mature business will be an attractive prospect to buyers, so now is a great time to sell if you’re looking for a new challenge. But if you’re in it for the long-haul, make sure you’ve got a plan for how to keep your business thriving for years to come.

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4. The Renewal or Decline Stage

The final stage of a franchise’s growth cycle can make the difference between becoming a stalwart of the sector and fizzling out after a few years of glory. Most businesses will enter some period of decline during their lifetime, but it’s what you do to address falling income that counts. If your franchise is in a decline, ask yourself:

• Have I pursued opportunities to expand or diversify? 

• Has the industry changed?

• Are my competitors offering a superior/cheaper product or service?

• Does my franchise’s tech need an update?

These are all common reasons why business may have slowed down. At this point, you’ll need to make a decision: do you want to sell your franchise on or reinvest to improve it? If you choose the latter, it may simply be a case of investing in new products or altering services to cater to changing customer demands. Joining the right franchise can help here, as the best franchisors will constantly be evaluating and innovating to keep your business relevant and successful. 

Keeping your business healthy

As you can see, there are potential stumbling blocks for business owners at every stage of the franchise growth cycle. But with careful planning, diligent maintenance of your finances and plenty of guidance from your franchisor, you should be able to avoid the worst mistakes and build a business that sees you through to retirement. 

Are you looking for more tips? Check out our articles page for plenty of insightful content.

Sophie Cole, Point Franchise ©