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How many franchisees does it take to make a franchise feasible?
Even though the answer is critical to the development of a network, the question is often not even considered by the franchisor. Many businesses decide to start franchising and rush straight into getting franchise marketing materials, manuals and agreements prepared. If only they delayed the process, and did the right financial projections, they might find out that they could never have enough franchisees to make it worth setting up the franchising infrastructure in the first place. More often they would find out that it would be impossible to get enough franchisees on board before the franchisor runs out of money. Even if they do the projections, too many people are over-optimistic about recruitment rates and too conservative about recruitment and support costs. Of course, the answer is different for every business, but the objective is to get to the point where ongoing fees cover all the overheads of the franchisor’s business and he is no longer relying on franchise sales to keep the ship afloat. Typically, that point rarely comes before the fourth year of trading as a franchisor, and working capital funding in excess of £100,000 may be required to get there.
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