If you are considering franchising your business or you are already a franchisor, we have set out some important considerations to building a successful franchise business.
Build a strong brand
A successful franchise system needs a strong brand to attract and retain customers and franchisees. A brand is made up of many parts, for example, your name, your logo and your product/service. But the point to remember is to consider what you need to build and protect your brand–and what effect franchising will have on your brand.
Uniformity of shop fronts is one of the key characteristics of franchising. Assess whether the look and feel of your premises can be easily replicated, or whether you want to change the look and feel of your premises when you franchise.
Plan for franchising success
Will the business work as a franchise system in practice? To answer this and other important questions you will need a business plan. Put simply, you are going to make too many critical decisions to wing it without one.
Central to the success of a franchise is the success of the franchisees. You will need to ensure that there is sufficient profit for franchisees after deducting business costs, royalties and other franchise costs. A business plan provides the necessary information to develop a financial model that spells this out.
Create a competitive advantage
What aspect of your system, product, service or business plan makes your franchise system better than established businesses or systems? Work this out and the world is your oyster!
Duplicate what makes your business successful
For franchisees to realise the same success you currently enjoy in your business, they will have to replicate those parts of the business that make it successful. You should consider if these parts are replicable and, if so, how to replicate them. Finally, consider the level of difficulty for franchisees and if specialised training or qualifications are required.
Know the pros and cons of franchising
There are two main advantages associated with franchising. One, less capital is required to establish a franchise network because it is the franchisee that foots the bill to open an outlet. Two, the franchisee is responsible for managing staff and the day-to-day operations, while the franchisor retains control over the manner in which the franchisee carries on the business.
At the same time however the franchisor is obliged to provide the franchisee with training in the operation of the franchise system, continuing support including staff training, advertising and the development and improvement of the franchise system to keep it profitable. Further poorly performing franchisees can be difficult to deal with and resolving problems created by them can take considerable amounts of your time and energy.
Be smart with advertising
There is no denying that smart advertising and marketing has a positive impact on sales and growth. What is more, potential franchisees use it to gauge the success and attractiveness of a franchise. Economies of scale associated with advertising and marketing are a significant advantage that franchise networks have over stand-alone businesses. So it pays to be smart about how you promote and market your business if it is franchised.
Select the right franchisees
Franchisees are the lifeblood of a franchise system, and having the right franchisees to manage staff and the day-to-day operations of the franchise system is paramount. This makes the procedure for selecting franchisees too important to be left to chance.
A franchisee that lacks skills, capital or commitment can cause a franchise to fail and damage a franchise system’s reputation. Furthermore, replacing a franchisee is time consuming. So it’s clear that well-designed procedures for franchisee recruitment are the best option.
Make sure all franchisees succeed
Bringing in new franchisees is important, but so is ensuring that existing franchisees are successful. Steady well-planned and considered growth is less risky and ultimately more profitable than over-ambitious expansion leading to franchisee failures or declining quality.
Ensure franchisees are compliant
A franchisee is not an employee, but like the franchisor, an owner of a business. This point makes compliance an important consideration. Effective procedures that are consistent across a franchise system are a must have.
A franchise system with a strong culture of compliance benefits from the experience, knowledge and investment of the franchisor and it improves the value and growth potential of your system. Another benefit is consistency in customer service, which leads to greater customer trust and repeat business. Furthermore, potential franchisees will also be attracted because of these benefits.
Set up open lines of communication
Good communication with franchisees helps to ensure compliance, support for franchisees and to obtain feedback from franchisees that ultimately improves a franchise system.
Know your legal obligations
As part of developing a franchise system you will need to consider all applicable laws–and an important piece of legislation is the Franchising Code of Conduct. It’s prudent to obtain detailed advice about how these laws affect the various aspects of your franchise system.
At the very centre of the legal considerations are the franchise agreement and disclosure document. Both documents are necessary and will need to be prepared for your franchise system. Another important consideration is the structure of your business or, more precisely, how the various assets associated with your franchise system are owned.
While these are the important considerations in building a successful franchise business, they are by no means exhaustive.
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.