When Should you Consider Franchising your New Business?
When Should you Consider Franchising your new Business?
Franchising is one way of raising capital and increasing market share or geographical reach.
Franchising involves the licensing of a franchisor’s know-how, procedures, business model, brand and rights to sell products and services to a franchisee, who in return, pays franchise fees and meets obligations set out in a franchise agreement.
Here are some fundamental things that are critical to establishing a franchise network.
System
Entrepreneurs who establish a franchise either create a system or acquire and improve an existing system someone else developed for the supply of products and/or services. The term ‘system’ is essentially the unique business methods, procedures, and processes that have been developed to acquire and sell specific products and/or services.
Franchising grants each franchisee a right to use that system and imposing on them an obligation not to change or depart from the system. This extends the reach of the business undertaken by the franchise network and maintains uniformity in the way the franchise business in undertaken.
Before you start selling franchises you need to know the system works and that a franchisee can understand the system and follow or apply the system’s requirements.
Not all systems can be easily replicated. For example, you may have an established brand connected to a sports celebrity or have an instinctive knack for certain skills. However, you need to translate that instinctual knack or brand into procedures that another person can follow to ensure that franchisees can implement the system and are equally successful.
Replication is the process in which all the products, operations process, and marketing is replicated so that it can be uniformly applied and followed in every franchisee’s business.
Franchise Uniformity
Once you have a system that can be replicated, you are ready to grant rights to use that system in return for a fee.
Replication is the result of all franchisees uniformly applying and following the methods, operations, processes, and marketing of the franchise system in the operation of each franchisee’s franchise business. It often extends to acquiring products from a confined range of suppliers to ensure quality control and consistency in what is offered by franchisees to the public.
Uniformity in the franchise network is a very important key to success. Different outcomes lead to disappointing consumer expectations, and this damages the franchise network’s brand and reputation.
You should document the franchise system in an operations manual. This is a means to keep franchisees accountable.
Intellectual Property
It is imperative that you simultaneously protect that system by having rigorous mechanisms in place to protect the intellectual property that inherently exists in the system. That is, the products, processes, know-how, trade secrets and formulae to name a few. Trademarks, patents and well drafted legal documentation stipulating the terms and conditions of use of the intellectual property are common mechanisms to protect the intellectual property.
The success of your franchise business is dependent on many factors and a well established name or brand is one. Having control over the franchise’s branding means you can determine how and when it can be used and this is particularly important when it comes to advertising, promoting and marketing the brand. This is why franchisees are required to obtain your written consent before using the franchise name or logo for advertising purposes.
The First Franchisees
If you are about to franchise your business system. your current employees are your greatest asset because they are familiar with the business and have tested and tried the system. They may wish to become your first franchisees. Cultivating a happy first franchisee who will act as the brand ambassador is critical to creating a successful franchise network. It is imperative that a franchisor provides incentives and operational support to the first or first few franchisees.
You need to make sure that you will always be prepared to support your franchisees.
It is essential that your franchisees receive training before they commence operating the franchise business. Have a clear training plan and ensure your training is comprehensive. If you do this, you are on your way to having consistency and uniformity across the franchise network.
A source of many franchise disputes is different expectations between franchisors and franchisees as to what support and training the franchisor will provide. There must be clear communications about what support and training will be provided to a prospective franchisee before the franchise agreement is signed to avoid future disputes.
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Territory
Having a clearly defined territorial boundaries is important especially as ecommerce becomes the predominant method of sales of products as opposed to the traditional shop front premises-based method.
In an online sale environment, you can maintain control of the operation of the franchise network and the supply of its approved products and services by having a centralised call centre/customer relationship management system to help in allocating customer enquiries to the most proximate franchisee. You can also allocate specific areas in which a franchisee has a right to promote and market his or her franchise business to the exclusion of other franchisees.
Where goods and services are supplied through the traditional premises-based method, territorial boundaries can be determined by either geographical region or a specific site or sites to ensure the franchise business is sustainable. The geographical region may be determined by the analysis of the demographics of the area. A defined geographical area in a franchise agreement may confers exclusivity to a franchisee operating in that geographical area.
An exclusive territory is an area within which a franchisee has exclusive rights to conduct the franchise business to the exclusion of all other franchisees (and also can exclude the franchisor) in the franchise network. Alternatively, a franchise system may limit exclusivity to marketing activities by providing for an exclusive marketing territory where franchisees have exclusive rights to advertise their franchise business within the territory to the exclusion of all other franchisees from the franchise network.
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