Are you (really) ready to franchise?

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Want to find out if your outlet is made to multiply? Your business could be the next best franchise.

Did you know that 92% of all franchise concepts in South Africa are home grown? This is good news if your business is booming and you’re thinking of multiplying your success. But even the best-run businesses will result in failure if they’re not ready to expand into the franchise market.

TAKE NOTE

While franchising your business reaps a lot of benefits, it’s vital to prepare for the accompanying hindrances. “One of the big advantages to company-owned growth is that the parent company keeps every dime that goes toward the bottom line. But the flip side is that the same parent company also absorbs every loss its corporate stores generate,” says Mark Siebert, CEO of the national franchise-consulting firm iFranchise Group.

Franchising may sound like a good idea, but have you considered the following?

Determine if your business is franchisable

Franchising your business is a big step that should be taken with care. The right research, preparation and franchisees are just some of the most vital ingredients to your new journey’s success.

  1. Can you cover the costs of starting a franchise?

“Costs will quickly multiply for brand development, courting potential franchisees, compensating experts and especially covering legal fees. Never ever underestimate the legal fees,” says Kyle Zagrodzky, president of OsteoStrong Franchising in the USA.

Apart from actual set-up costs, marketing yourself to potential franchisees and – if you choose to – taking on the responsibility of advertising and marketing for your entire franchise chain could end up costing you a lot more than what you’re currently spending on your private locations.

“You’ll need to start marketing the growing chain to drive sales to franchisees. New franchisors underestimate how much this marketing and support effort will cost,” says franchise consultant Joel Libava. “Marketing encompasses everything from radio or print ads to uniforms, logos, fliers, and logo art on company vans. Trust that you’re going to need a lot of money for marketing.”

  1. Can your idea be replicated?

You may already have thought of the above and saved some capital, drawn up the marketing plan and set cash aside for any eventualities. But is your business model something that can be copied to the tee, so customers can only tell the difference because of their location?

“If the concept only works because of a unique location, a superstar salesperson, or because an owner is working 80-hour weeks, it is going to be difficult to repeat the magic,” adds Mark Siebert, CEO of the national franchise-consulting firm iFranchise Group. “Beyond having a track record of sales and profitability at the existing business, there are several factors to weigh here,” he says:

The concept has to appeal both to end consumers and to prospective franchisees.

There should be an expectation that more units will create economies of scale and increase profits.

The business needs to be something you can systematise and replicate, not something that needs your personal touch to be successful.

When you’ve checked the boxes above, put yourself in the shoes of a potential franchisee regarding parting with huge amounts of money for someone else’s idea.

  1. Are you committed to serving franchisees’ needs first?

Siebert says that the most successful franchisors are typically those that are the most committed to making sure that their franchisees are successful, adding that a franchisee who is an owner-operator will expect to get a return, both for the time that they spend in the business as well as their investment in the franchise.

Tyrone Herdman-Grant, COO of Panarottis, explains why having an owner-manager is preferred by his company: “In the case of multiple store owners, we insist that the manager has an equity stake,” he says. “Many of them go on to buy their own stores as well. It’s a great way to empower individuals within the group who lack the financial resources to start their own businesses.” Skin in the game ensures that parties are aiming to turn a profit, so you should consider owner managers a top priority when kicking your franchise chain off.

While there’s no law determining when you’re ready to franchise, a few considerations – mostly involving cash availability and the original concept itself – should be made before deciding to multiply your success. Rather do the necessary homework and also consider speaking to franchising professionals to assist with starting your empire.

KEY TAKEAWAY

The franchisability of your business model depends on where you are and where you plan on taking your concept. Should your model be viable for such an expansion, the advantage should be considered followed by the process of choosing the right people to drive your franchise to success. Doing the homework around your business’ replicability is also essential.

Source: Standard Bank BizConnect www.bizconnect.standardbank.co.za

 

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