Are You Thinking About Expanding Your Franchise?


If you’re thinking about expanding your franchise dealership, there are a lot of aspects to keep in mind when taking this giant ‘leap of faith’. Below, you’ll find a few commonly asked questions that will help you as you start to calculate your ability to expand your franchise.

Signing An Area Development Agreement

When you are thinking about expanding your franchise there are many ways to go about it. One such way is to sign an ‘area development agreement’. This type of contract permits the franchisee to open a set amount of franchises within a certain area over a predetermined time frame.

However, there is one main downside to an area development agreement, as if you do not keep up with your end of the agreement and provide the new franchises that have been promised, you could lose the area selected for the franchise.

Is Expanding Your Franchise Affordable?

Even though a good portion of the franchise expansion is going to come out of the franchisees’ funds, you will still be obligated to contribute towards the investment with your own finances. If you are planning on taking out a loan to cover these expenses, keep in mind that you will be required to deliver a wholesome and professional business plan to the lender in order to get an approval for the required funds. Keep in mind that the highest amount of loan that you could receive will be fifty percent of the complete cost of the franchise.

Often a lender will want you to provide some form of security for the funds they loan you, which may require you to take out a second note on your home mortgage to qualify. In order to prove the validity and feasibility of your franchise idea, the lender might wish to see a ‘test run’ on the franchise idea.  You might also want to ensure that you have enough workable assets to sustain the dealership until the royalty funds from the franchise start coming in. This will ensure the success of your dealership, while it is in the start-up phases.

Can Your Dealership Keep Up With The Constant Supply And Demand Required For An Expansion?

Keeping up with the ever-changing needs of customers is one of the hardest things about being in business for yourself. However, one thing that is guaranteed is that as long as there is a need for transportation, there is always going to be a demand for vehicles. You just have to ensure that your dealership and franchise can provide customers with a sufficient supply of the type of vehicles that they want and need.

What Sort Of Cars Do You Want To Expand Your Franchise To Sell?

While you are going over the above questions regarding the expansion of your dealership franchise, there are some additional things that you need to consider. Below, you can find a list of questions that you will need to answer prior to starting the expansion.

  1. What type of cars do you want to sell at this expansion site?
  2. Are you going to sell used, new or a combination of both?
  3. Are you planning to have a service center at this dealership franchise?

If you are going to sell new and used vehicles, the startup cost will be higher than if you were to sell previously owned vehicles only. Keep in mind that if you are interested in selling used or previously owned vehicles at your dealership franchise, you are then inviting customers who might be concerned about not spending a lot of money on a vehicle.

If you are selling used vehicles, it might be a good idea to have a place in which the vehicles can be serviced; particularly, since used vehicles typically require more maintenance than a brand new vehicle does.

Going Into A Franchise Agreement With A Large Car Brand

Once you are able to answer the questions above and feel confident in your decision to expand the dealership franchise with a larger car brand, there is a set of extensive procedures that you must go through in order to become the franchise. If you want to expand your dealership so that you can add the larger car brand’s name to your current vehicle lineup, the organization will require you to make the all-encompassing monetary statements available, which will prove your capability of adding the larger brand’s name to your dealership.

If your dealership is going to join forces with a popular brand of vehicle, it will no doubt give your dealership a new found reliability within the car marketplace. This new reliability will mean more sales for the dealership as a whole. Subsequently, there will be additional requirements and guidelines that you must follow according to the franchise agreement regarding the advertising of the larger brand’s vehicle. So, you must ensure that you adhere appropriately.

Final Considerations

Before you take any further steps, you are going to have to think about one more important consideration.

  1. Will this dealership franchise be in need of a service department?

Having a service department available can add many positive attributes to your current dealership and any franchise expansions you take on in the future. For example, an onsite service department can aid in the creation of better customer rapport and association. With an onsite service department, your dealership can benefit in the following ways:

  • Allow you to acquire a rapport with a customer from another dealership by ensuring that their vehicle is serviced in an excellent, timely manner. You may even build such a rapport with them that they may prefer to buy their next vehicle from your dealership.
  • By providing customers with excellent customer service and relieving any anxiety they might be feeling about being without their car will be greatly appreciated. Perhaps you can give the customer a ‘loaner car while their car is in the shop. Any techniques you do to relieve their stress will be beneficial to your dealership in the future.
  • Remember to maintain the association with the customer after their car has been serviced and they are back on the road again. Sending them mailed letters regarding any new sales or service offers that come up from time to time will ensure the probability of them coming back to your dealership in the future.

At this point, you should have answered all the questions that were stated above. With the questions answered, you are now prepared to take that giant step into expanding your dealership franchise. You will need to plan thoroughly beforehand to obtain the loan and feel confident in your ability to run the franchise, regardless of whether you choose to partner with a larger brand or not.


Sources: Offit Kurman, Raconteur, WikiHow