Think you’re ready to expand through a franchise model…read this

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The franchise market is an attractive growth strategy for business owners. And while the local market is thriving with an estimated turnover of R587 billion, it’s no guarantee that it will be easy to succeed.

 

That said, if you are thinking about expanding your business into a franchise, you need to do your homework. Firstly, determine whether or not your business has the basis for developing a franchise system, as not all businesses are suited to this model. And secondly, understand the common pitfalls in establishing it.

 

Is your business franchise-worthy?

 

There are just two essential aspects that will resolve whether or not a franchise is an option for your business expansion goals. One is regarding the ability to present a distinctive value proposition that will appeal to franchisees, who are in effect investors in your business. The other is the ability to replicate the business long into the future. A successful franchise is ultimately underpinned by the product’s or service’s flexibility to adapt to evolving customer needs and market dynamics.

 

Bradley Sugars, a global franchise founder authored a book entitled, “Successful Franchising” in which he shared some top tips for franchising a business. He suggests that entrepreneurs;

 

  • Ensure that the business is sustainable. Test the concept to ensure that the systems work, it operates efficiently and is making a profit.
  • Consider whether or not the business can actually be duplicated, and if there is enough consumer demand for the product or service. This is reinforced with marketing and strong brand equity, i.e. the brand is easily recognised and positively perceived in the market.
  • Establish if the product or service has longevity. Will it be able to adapt to future trends without becoming redundant?
  • Ascertain whether or not there are enough funds to see you through the next three to five years to sustain the business until profits consistently come in.

 

Common traps when starting up a franchise

 

If franchising is still a viable option, consider these common pitfalls in establishing it;

 

  • Underestimating the amount of the principle investment required to self-fund the business in the beginning. Start-up costs add up.
  • Providing insufficient training is another common issue. The initial training must be adequate to equip the team to navigate the challenges that lie ahead. This is supported by well structured and developed systems and procedures. Develop step-by-step operating manuals for franchisees; don’t assume that they already know.
  • Not employing the services of trusted, professional advisors including a lawyer, financial advisor, a franchise consultant and even a franchise solicitor to help draw up the franchise agreements. Ensure all legalities are in order before you franchise the business.
  • Ignoring the competition. The growing market is hugely competitive and you should never undervalue the potential for competitors to grow their slice of the market share pie, stealing it away from you.
  • Not being discerning enough about selecting the right franchisees. Oftentimes greed gets in the way of choosing franchisees for the long-term, especially when the enthusiasm of getting started and making money can cloud judgment. Sour franchisee relationships can hurt the business in so many ways from legal costs to reputational issues.

 

The saying, “A fool and his money are quickly parted” should be applied as a guiding principle when realising a franchising ambition. While there are many challenges, research, counsel and caution can safeguard against failure.

 

Source: Pieter Scholtz is the Co-Master Franchisor in Southern Africa for ActionCOACH. www.actioncoach.co.za

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