Franchising – to do or not to do?
Franchising involves selling the rights to implement a core set of brand values and products (that you have created) to a third party. The third party does not own your brand values or products. However, he or she will replicate your brand identity to such an extent that from the perspective of the customer, the franchise-holder’s outlet is your business.
Here is an action guide to the key steps that you’ll need to consider. These will help you mitigate the risks and opportunities of franchising:
1. Evaluate the readiness of your business model: The first issue to tackle is the fact that not every business will suit a franchise model. There’s much more to this than whether you have a good track record of turnover and profitability. For example, you might be good at what you do, but do you actually have a strong USP that would roll out as the backbone of the franchise proposition? Most successful franchises offer something that in essence is quite normal, but perhaps packaged in a memorable way, or with new elements that add a certain ‘twist’.
2. Identify your market position: How successful is your business, really? Most successful franchises take a business that’s already profitable and try to replicate that success in other locations. That doesn’t mean, though, that if you have one successful site you are automatically ready to franchise the business model. Statistics show that the core business needs to have at least two or more successful sites in order to generate the right levels of perceived credibility, or to understand what’s required in order to systematize and generate a stable franchise template.
3. Have you done proper research? Too many would-be franchisors are basically acting on instinct or the assumption that their business model is replicable and portable. Commission detailed and objective economic market research – don’t base your decision on anything else.
4. Do have the legalities in place? Once you’ve made the important decisions that shape how your franchise will operate, you’re ready to complete your legal paperwork. When you submit it, be prepared for the municipality or government agency to review the document and possibly demand additional disclosures before they approve your application. It’s a good idea to hire a specialist legal firm to help fast track the process.
5. Can you leverage your network to find the right people? While venturing into franchising, it’s important to find the right people – whether it’s suppliers, partners, staff or managers. It’s often worth putting your most experienced members in your new franchise outlet to ensure its smooth operations.
6. Have you defined franchising business model? Your business model will need to consider factors such as franchise fees and royalty percentages, the terms of the agreement, the size of territory to be awarded to each franchisee, what geographic area you are willing to offer franchises within, the type and length of training programme you will offer, whether franchisees have to buy products from your company, the entry-level for business experience and net worth that franchisees will need, how you plan to market the franchises and the management template: an owner-operator for each unit or a chain of master franchisees who will each develop multiple units.