For some business owners, opening a franchise in another state is about expanding an already-thriving business. For a first-time franchisee, an out-of-state franchise could be a great opportunity to break into the market in that city just across the river (and the state border).
But all present and future franchise owners face the same dilemma: how do you open a franchise in another state? Here are 5 tips on how to go about expanding your market share.
1. Be Clear on Your Reasons for Expanding Your Franchise
People expand their franchises for different reasons, whether that’s to increase revenue, take advantage of economies of scale with a merger, or simply because they enjoy the challenge. But no matter what, it’s important to have a clear roadmap of where you are before the expansion, where you want to be after the expansion, and how opening a franchise in another state is the best way to get there. A few questions to ask yourself include:
- What are the goals I’ll achieve by opening a franchise in another state?
- Do I want to start a new franchise location or acquire one from someone else?
- Do I have the time to dedicate to expanding the franchise, or will this just lead to burnout?
- How will I manage the new team?
- Which states offer the best incentives for small businesses?
These are important questions to answer for yourself as well as for other stakeholders. Even if you already have a franchising agreement in your home state, opening a franchise in another state will mean approaching the franchisor and convincing them that your business plan is financially sound.
2. Check Your Franchise Agreement Before Expanding
If you’re planning to expand your existing franchise, then the next step is to look at your franchise agreement, which will detail the range and restrictions of your franchise’s geographic territory. A “territory” can be as small as your franchise location or as large as multiple states.
There are different kinds of franchise territories. In an exclusive franchise territory, your franchise is the only location allowed to operate within the territory. If you’re looking to expand your franchise to a second location within your own exclusive territory, then you’ll need to talk to your franchisor and renegotiate your franchising agreement.
If someone else already has an exclusive franchise territory in the new state where you want to expand, then you’ll have to negotiate with the owner to talk about a potential M&A. Of course, the franchisor will need to agree to the deal as well.
Another type of franchise territory is called a protected territory, which means that new franchises can be established in the territory with the franchisor’s permission. Compared to an exclusive territory, it’s easier to open a new location in a protected territory. However, if you want to open a franchise in another state that’s already part of a protected territory, then you’ll still need to talk to the franchisor.
3. Register to Do Business in the New State
Once you know that your franchisor is on board with opening a franchise in another state, you need to register to do business in that state as a foreign entity. Here, “foreign” refers to any business that’s not headquartered in the state (including American companies). You’ll want to work with an experienced attorney to do this. States rarely deny applications, but the process can be complex, and you won’t be approved if you don’t file the right paperwork.
Your attorney will also make sure to stay on top of any annual filing requirements and serve as the point of contact if your business faces any legal trouble. Ask your current business attorney if they can practice law in your new franchise state. If not, then you’ll need to work with a local attorney.
You’ll also want to open a local bank account in your new state. While it’s possible to do business exclusively through your out-of-state bank account, local banks often offer special loans and financial incentives for customers with in-state businesses.
4. Localize Your New Franchise in its New State
Now that your franchise is set up in your new state, it’s time to localize the business. Make sure that the business number for your out-of-state location has a local business number.
You’ll also want to take care of important marketing-related tasks, such as ensuring that your business information is accurate when people look up your franchise location. And don’t forget to create a local SEO strategy to maximize your franchise’s brand awareness in the area. To save yourself stress and money, it makes sense to work with a BPO company to set up a social media and marketing strategy that caters to your new market.
5. Decide Who Will Work the New Franchise
As a good workplace leader, you also need to think about the human dynamics of your new franchise location. Not only must you ensure that the location is properly staffed, but you also need to create a positive working environment.
Depending on the type of franchise you have, it may make sense to hire local employees. But if your franchise involves skilled professional work, then you may want to have some senior staff move to the new location and jump-start the team’s productivity. If that’s not possible, then you can also assign your in-state technical experts to remotely team up with out-of-state junior employees for guidance and mentorship.
For any type of franchise, you also need to decide who will manage the out-of-state location. You could hire a family member, for example, or you could give this leadership opportunity to an up-and-coming assistant manager. Whatever you decide, just remember that your new manager will need a lot of initial support to run your new location, especially if they’re coming in as the new boss.
Expanding Your Franchise to a New State Takes Solid Planning
No matter where a franchise is located, the key to success is fostering a productive and motivating work environment by prioritizing people above all. At Confie, we make sure franchise owners have the right tools to succeed. To learn more, get in touch with us today or call us at (714) 252 2500.
