Many entrepreneurs dream of building their businesses to the point where they need to expand their businesses into other territories or regions. Franchising, if correctly done, provides a very effective form of leverage to expand into other regions.
However, many entrepreneurs believe that franchising your business is an easy way to riches. This is not the case and requires careful thought, preparation, planning and execution.
I would like to share some key insights into the factors that need to be considered for successful franchising.
- Proven Product and systems
As Franchising is all about leveraging products, services and systems it is imperative that you ensure that your idea, products and systems have been thoroughly tested. You cannot start Franchising your business while still testing whether the product works or not, neither can you franchise your business until you are absolutely convinced that there is a need in the market for the product. In addition, you need to be able to demonstrate that the business is able to operate profitably for a sustainable period prior to Franchising your business. This is best done by first running a test model successfully.
Operating a successful business is one thing – being able to duplicate the business successfully is quite another. Ensure that you have drafted a set of detailed operating manuals, brand guidelines and financial models that any potential franchisee is able to use from the start of the franchise being opened.
As your Franchise expands, you start experiencing a certain loss of control and one area that you would want to have clear guidelines for is in the area of brand guidelines. Failure to give attention to this element could very easily result in the dilution of your brand and or proliferation of unauthorised brand logos and products and services
- Legal Agreements
Make sure that you appoint an attorney that understands franchising and ensure that all Master Franchise and Franchise agreements have been properly drafted. In South Africa, you may want to consider consulting the Franchise Association of South Africa (FASA) to ensure that you have covered all the requirements for registering a Franchise.
In addition to the above, use the services of the above experts to draw up your Franchise Disclosure Document as well.
If there are patents that have to be registered, make sure that these are handled and lodged by experts in the field.
- Controlling the Numbers
As your franchise starts to expand you want to ensure that you have access to the key numbers (financial and non-financial) that will determine your success. Set up proper accounting systems and software that allow you to have access to the key numbers for each Franchise operation. Having access to these numbers will provide you with the opportunity to identify which of your franchise operations are performing well and which are not performing well. Timeous access to the correct information is critical to addressing non-performance and being in a position to coach the franchisee in the areas that he needs support.
- Franchise Support
One of the keys to successful franchising and one that is often overlooked is the support structures that need to be put into place to be able to roll out franchises at the pace that you are planning. Areas that need to be put into place are as follows:
- Training and Post training support. Whilst the success of any franchisee will largely be dependent upon the initial training a franchisee will receive, it is critical, that the appropriate post training support and training structures are put into place. This is an area where the strength of the “community of franchisees” is built and as a result one needs to look at regular support structures – weekly, monthly, quarterly and annually.
- Refresher training – Whilst Franchisees will receive initial training and post training support, I would recommend that you conduct annual refresher training to ensure that your team are kept abreast of any developments within your markets and or products.
- Franchise Selection
The success of any business is built on the strength of the team that you surround with. The same applies to franchising. Define what it is that you are looking for in a franchisee and communicate what you are looking for to all those involved in finding the best possible candidates.
Equally important is to define your franchise sales process. This should be designed to ensure that the process achieves two main goals:
- Put the prospect in a position to be able to make an informed decision about whether your opportunity is the best business opportunity for the franchisee
- secondly, to ensure that you are confident that the franchise prospect has what it takes to be successful in your business.
Often, corporate executives want to leave their highly pressurized corporate roles, and whilst being successful in their corporate roles, they might not have the personality, drive and tenacity to be successful as an entrepreneur. Whilst it is easier to succeed within a franchise model it still takes hard work. If you want your franchise model to grow at the pace that the market requires, ensure that you select franchisees that are absolutely committed to their success as well as your brands success.
- Cash flow
Starting out in any business takes cash. There is a very well know quote that states – “at the start of your business, it takes twice as long and twice as much cash”
This is equally true for you as you start to roll out your franchise operations. The set up costs relating to product development, developing systems, testing your concept store, brand development, developing Franchise training manuals, legal, research and development, IT systems as well as head office support structures are require large amounts of cash.
As a result it is critically important that you develop a proper cash flow model and budget and ensure that you track your actual expenses versus planned expenses on a monthly basis so as to be able to take corrective action timeously.
- Marketing and Branding
One of the key reasons Franchisees decide to join a franchise is because they lack the ability to do effective marketing and branding for themselves. As a result you need to develop a detailed marketing plan for the brand as a whole whilst also developing a marketing plan that any Franchisee can use at the start of his franchise operation.
Head Office’s responsibility is to drive brand and or industry awareness of your franchise or product whilst it is the responsibility of each franchisee to drive their local area marketing.
As the marketing environment is constantly evolving it is the responsibility of the head office marketing team to ensure that the entire team is kept abreast of developments is this space.
Franchising is essentially about relationships between Franchisor and Franchisee on the one hand and franchisees and their customers on the other hand as well as relationships with your suppliers. It is therefore important that appropriate communication structures are put into place to drive and improve all the relationships that exist in the business models.
In conclusion, Franchising is an exciting way to expand your business whilst not losing control of your brand or your products. `This can be a rewarding way to drive and achieve your financial goals if careful attention is given to the points identified above.