10 Steps to Start a Franchise Business

Franchising can be a great way for business owners to rapidly grow their products or services with relatively low costs. However, building a successful franchise takes careful planning and long-term commitment.

In this article, we set out 10 key steps that you should consider when starting a franchise  business. These include assessing the feasibility and suitability of your concept, understanding the financial investment required for development, ensuring legal compliance with relevant regulations, defining your business model and structure, as well as setting up systems related to training and marketing. 

1.  Feasibility and Suitability:

Before you start a franchise business you should determine if your business concept is suitable for franchising. Assess its uniqueness, scalability, profitability, and market demand. Evaluate if the business operations can be replicated and taught to franchisees effectively.

Our "Can I Franchise My Business" series provides more information about feasibility and suitability:

Can I Franchise My Business - Part 1
Can I Franchise My Business - Part 2
Can I Franchise My Business - Part 3

2.  Franchise Development Costs:

Understanding the financial implications of starting a franchise is crucial for any business owner. It is important to determine the initial investment required for franchise development, which includes various costs such as legal and consulting fees, marketing expenses, training expenditures, and infrastructure setup.

In the early stages of the franchise system, you may not need to invest heavily in infrastructure. However, as the franchise network grows, it becomes essential to have the necessary systems and personnel in place to support your franchisees and effectively market the business.

Investing in infrastructure can range from establishing a robust IT system to developing operational support structures. This may include implementing software solutions for inventory management, sales tracking, and customer relationship management. Additionally, you may need to hire additional staff or outsource certain tasks to ensure smooth operations and efficient support for your franchisees.

Training expenses are another important aspect to consider. Developing comprehensive training programs and materials for franchisees is essential to ensure that they are equipped with the necessary skills and knowledge to operate their businesses successfully. This may involve creating training manuals, conducting training sessions, and providing ongoing support and guidance.

Your accountant or business adviser can assist you to assess the potential return on investment (ROI) and projected profitability.

3.  Legal and Regulatory Compliance:

Seek legal advice from an experienced franchise lawyer to navigate the complex legal aspects of franchising. Understand the Franchising Code of Conduct and other laws applicable to franchising.

There are a number of areas covered by the Franchising Code of Conduct including good faith, disclosure, franchise agreements, termination, marketing fund obligations and dispute resolution. The Australian Consumer Law also governs other areas relevant to franchising including misleading or deceptive conduct and unconscionable conduct.

Develop comprehensive franchise agreements, disclosure documents, operating manuals and systems that comply with legal requirements.

4.  Franchise Business Model:

Define your franchise business model and structure before you start to franchise your business. Some franchisors continue to operate corporate sites during the franchising start up phase. This assists with cash flow, but also helps the franchisor to continue to develop the offering and to streamline processes and procedures.

Determine the franchise fee structure, ongoing royalties, and other financial arrangements with franchisees. Establish guidelines for territory allocation, training and support, marketing support, and operational standards.

Establishing operational standards is essential to maintain consistency and ensure that all franchise locations operate at a high level of quality. This includes setting guidelines for customer service, cleanliness, product quality, and other aspects that contribute to the overall brand experience. Regular audits and inspections can help ensure that these standards are being met and provide an opportunity for feedback and improvement.

5. Franchisee Selection Criteria:

Develop criteria and processes for selecting franchisees. Identify the qualities, skills, and experience you seek in potential franchisees. Remember, some franchise businesses require a franchisee to possess specific skills and qualifications. Establish a comprehensive franchisee screening and qualification process to ensure alignment with your brand values, goals, and operating standards.

A franchisee that lacks skills, capital or commitment can cause a franchise to fail and damage a franchise system's reputation.

6.  Franchisee training and support:

Training and support are essential aspects of a successful franchise system. Developing comprehensive training programs that cover all aspects of the business, from operations to marketing, will help franchisees feel confident and equipped to run their own outlet. Ongoing support should also be provided, whether through regular check-ins or regional meetings to address any questions or concerns that franchisees may have.

Before you start a franchise business, determine the training and support programs you will provide to franchisees. Develop training materials, operations manuals and ongoing support mechanisms to ensure consistent brand representation and operational excellence across all of your franchise locations. Most training materials and operations manuals are now delivered online, which means that you can continue to develop your training materials and operations manuals as the franchise system matures.

7.  Marketing and Branding:

Marketing support is another crucial element of a franchise business. Franchisees should have access to professionally designed marketing materials, such as brochures, banners, and online advertisements, to promote their business effectively.

Create a robust marketing and branding strategy to support the franchise expansion. Develop marketing materials, advertising campaigns, and digital marketing strategies to generate awareness and attract potential franchisees. Establish guidelines for maintaining brand consistency.

The franchisor should also provide guidance on how to implement local marketing initiatives to attract customers in their specific territory.

Remember, a strong and consistent brand targeted at both customers and franchisees is more likely to facilitate growth.

8.  Franchisee Relationship and Communication:

Define the communication channels and processes for maintaining effective franchisee relationships. Establish regular communication mechanisms, such as online platforms, to facilitate information sharing, collaboration, and feedback.

It is important to establish clear communication channels and processes to ensure that information flows smoothly between the franchisor and franchisees. 

Effective communication processes also help maintain consistency and adherence to the franchise system and standards. They allow for open and transparent communication, which can build trust and strengthen the franchisee-franchisor relationship.

9.  Franchisee Legal and Financial Obligations:

Clearly communicate the legal and financial obligations of franchisees. Ensure that franchisees understand their responsibilities regarding royalties, reporting requirements, marketing fund contributions, and other financial obligations.

10.  Growth and Expansion Strategy:

Develop a growth and expansion plan for the franchise network. Identify target markets and geographic regions for expansion. Consider the pace and scalability of growth, ensuring that infrastructure, resources, and support systems are in place to accommodate franchise network growth.

If you have a good or service which is unique or is new to the market, you may aim for fast growth in order to capitalise on being first to the market. If fast growth is not the best strategy for your business, you may choose to open a number of corporate sites to generate cash flow.

Remember, you don't have to choose just one growth strategy.

Takeaways

While the 10 steps to start a franchise business we have referred to in this article are important aspects to consider when starting a franchise, they are not the only aspects for you to consider. You should conduct thorough market research, seek expert advice, and develop a comprehensive franchise business plan before embarking on franchising. Additionally, maintaining open and transparent communication with franchisees and continuously evolving your franchise model based on feedback and market dynamics can contribute to long-term success.

Disclaimer
The information in this article is general in nature and is not intended to address the circumstances of any person or other entity. Although we do our best to provide timely and accurate information, we do not guarantee that the information in this article is accurate or that it will continue to be accurate in the future.