Ali Glassman explains how to turn your successful business into an even more successful franchise...
So you're interested in franchising your business? All sorts of business concepts, in all varieties of markets, now use the franchise method successfully to expand their business networks. However, not all businesses are franchisable. You must determine first if your business does indeed fulfil the necessary requirements for franchising.
Franchising is typically not ideal if your business is a product or service which is only likely to have an attentive market for a short period of time, or if gross margins are too low to offer a return on investment to both you as the franchisor and your franchisees. Additionally, if your business relies heavily on repeat business customers whose loyalty derives from the individual providing the service, or if your business thrives in a geographically defined market that doesn't have the potential to be repeated in other areas, your business may not be suited for franchising.
However, If you believe your business is a franchisable concept then you will need to offer potential franchisees a business format which includes your brand, business model and support services under the contractual guidelines of the franchise agreement, which will outline the financial arrangement.
The brand
As a franchisor your goal is to create a brand with a reputation that invites investment. Therefore, your brand should be easily distinguished and suitable for all the places you would like to expand your network into.
It is also your responsibility, as well as your duty to your franchisees paying for the advantage of using your brand, to protect it legally against abuse, both by outsiders and ex-franchisees. For that reason you will need specialized legal advice on protecting your trade and service marks.
The system
One of the principle benefits franchisors offer to prospective franchisees is the opportunity to run a business which has already proven its capacity to deliver products or services profitably to an identified market. It must be a proven business model that, in practice, has shown that the idea works and that you can be successfully copied and transferred to another person.
You will need to draft and establish an all-inclusive operations manual that details what a franchisee does, how they are to go about doing it, and at what performance and quality standards. The manual will need to cover the pre-launch procedures as well as the continuing operation of the business.
Additionally, you will need to develop and prove an initial and continuing training programme that ensures thorough instructions on the business information contained in the operations manual, within the specified timeframe.
The work involved in proving and documenting your business operation and training systems is far-reaching and generally calls for additional legal advice.
The agreement
Franchising agreements must be all-inclusive. They are not promotional brochures and they are individually tailored to your type of business.
A good agreement will incorporate not only your obligations as a franchisor, but your rights as well. Similarly, it sets out to determine the rights of the franchisee as well as their obligations.
This, however, is not meant to imply that franchise agreements are an equal balance of rights and obligations between equal business partners. Since franchisors are responsible for the whole network of franchises, they sometimes have to work against the interests of an individual franchisee in order to satisfy the needs of the entire network. In this area, you must get fully experienced professional advice.
The support service
One of the aspects of a franchise that makes it so appealing is the initial and continuing support services offered by the franchisor to the franchisee.
Franchisors have the sole responsibility for product and service development, for national promotion and advertising, for purchasing financial services, for quality control and national accounts. There is an investment involved in making sure the necessary support services can be delivered to all of your franchisees, from your first to your hundredth. Furthermore, the kind of business it is will determine the extent and variety of support.
You will also need to make sure that your franchised business is structured so your franchisees require your services on a perpetual basis and in turn, will want to continue paying for their membership to the network. When structuring your support system, you may want to seek experienced advice.
The offer documents
If you are selling your brand and your proven business model with the benefit of the support systems and necessary training you offer, within the framework of a franchise agreement with initial and continuing fees, you will need a prospectus, which is a formal summary of your franchising plan intended for prospective franchisees.
Potential franchisees will want to know what kind of business they can expect to do and its profit potential.
Since your own business is already up and running, and hopefully successful, you will have facts on which to base your financial and profit projections. It is important to keep in mind that franchisors have to draw a fine balance between producing realistic expectations, which can be met, and giving franchisees targets which are so low that they don't need to fully utilize their business opportunities.
In a nutshell, you should steer clear from overselling or underselling. Experienced advice can also be helpful with the offer documents, as you should match the presentation of your offer to the norms of the franchise's recruitment market.
The financial arrangements
Just like you, a potential franchisee is in business to make money, and there's no point in selecting a growth strategy, which won't maximize your potential. Although some franchisors may believe that they would be more profitable if they owned all of their outlets themselves, they sometimes forget that they never would have been able to expand their network into a forty or four hundred unit franchise on their own
In franchising, one needs to address two questions from the point of view of the franchisor, and from the point of view of the franchisee - what are the costs to the franchisor and how much should they charge in order to make a worthwhile return? And what price will the market bear or what can the franchisor afford to spend in order to make the business more profitable?
It is common practice to keep initial franchise fees as low as possible to the possibility of success and to ensure a value for money return on the continuing fees.
Franchising is typically not ideal if your business is a product or service which is only likely to have an attentive market for a short period of time, or if gross margins are too low to offer a return on investment to both you as the franchisor and your franchisees. Additionally, if your business relies heavily on repeat business customers whose loyalty derives from the individual providing the service, or if your business thrives in a geographically defined market that doesn't have the potential to be repeated in other areas, your business may not be suited for franchising.
However, If you believe your business is a franchisable concept then you will need to offer potential franchisees a business format which includes your brand, business model and support services under the contractual guidelines of the franchise agreement, which will outline the financial arrangement.
The brand
As a franchisor your goal is to create a brand with a reputation that invites investment. Therefore, your brand should be easily distinguished and suitable for all the places you would like to expand your network into.
It is also your responsibility, as well as your duty to your franchisees paying for the advantage of using your brand, to protect it legally against abuse, both by outsiders and ex-franchisees. For that reason you will need specialized legal advice on protecting your trade and service marks.
The system
One of the principle benefits franchisors offer to prospective franchisees is the opportunity to run a business which has already proven its capacity to deliver products or services profitably to an identified market. It must be a proven business model that, in practice, has shown that the idea works and that you can be successfully copied and transferred to another person.
You will need to draft and establish an all-inclusive operations manual that details what a franchisee does, how they are to go about doing it, and at what performance and quality standards. The manual will need to cover the pre-launch procedures as well as the continuing operation of the business.
Additionally, you will need to develop and prove an initial and continuing training programme that ensures thorough instructions on the business information contained in the operations manual, within the specified timeframe.
The work involved in proving and documenting your business operation and training systems is far-reaching and generally calls for additional legal advice.
The agreement
Franchising agreements must be all-inclusive. They are not promotional brochures and they are individually tailored to your type of business.
A good agreement will incorporate not only your obligations as a franchisor, but your rights as well. Similarly, it sets out to determine the rights of the franchisee as well as their obligations.
This, however, is not meant to imply that franchise agreements are an equal balance of rights and obligations between equal business partners. Since franchisors are responsible for the whole network of franchises, they sometimes have to work against the interests of an individual franchisee in order to satisfy the needs of the entire network. In this area, you must get fully experienced professional advice.
The support service
One of the aspects of a franchise that makes it so appealing is the initial and continuing support services offered by the franchisor to the franchisee.
Franchisors have the sole responsibility for product and service development, for national promotion and advertising, for purchasing financial services, for quality control and national accounts. There is an investment involved in making sure the necessary support services can be delivered to all of your franchisees, from your first to your hundredth. Furthermore, the kind of business it is will determine the extent and variety of support.
You will also need to make sure that your franchised business is structured so your franchisees require your services on a perpetual basis and in turn, will want to continue paying for their membership to the network. When structuring your support system, you may want to seek experienced advice.
The offer documents
If you are selling your brand and your proven business model with the benefit of the support systems and necessary training you offer, within the framework of a franchise agreement with initial and continuing fees, you will need a prospectus, which is a formal summary of your franchising plan intended for prospective franchisees.
Potential franchisees will want to know what kind of business they can expect to do and its profit potential.
Since your own business is already up and running, and hopefully successful, you will have facts on which to base your financial and profit projections. It is important to keep in mind that franchisors have to draw a fine balance between producing realistic expectations, which can be met, and giving franchisees targets which are so low that they don't need to fully utilize their business opportunities.
In a nutshell, you should steer clear from overselling or underselling. Experienced advice can also be helpful with the offer documents, as you should match the presentation of your offer to the norms of the franchise's recruitment market.
The financial arrangements
Just like you, a potential franchisee is in business to make money, and there's no point in selecting a growth strategy, which won't maximize your potential. Although some franchisors may believe that they would be more profitable if they owned all of their outlets themselves, they sometimes forget that they never would have been able to expand their network into a forty or four hundred unit franchise on their own
In franchising, one needs to address two questions from the point of view of the franchisor, and from the point of view of the franchisee - what are the costs to the franchisor and how much should they charge in order to make a worthwhile return? And what price will the market bear or what can the franchisor afford to spend in order to make the business more profitable?
It is common practice to keep initial franchise fees as low as possible to the possibility of success and to ensure a value for money return on the continuing fees.
