By John M Bauer
Franchising allows smaller companies to effectively compete with larger competitors. As a growth strategy, franchising provides you with the ability to gain market share and increase your points of distribution (number of franchise units).
Starting A Franchise Is One Of The Most Exciting And Yet Difficult Things A Person Can Do.
Should you jump in before someone else beats you to it?
Before you start working toward your dream, you should consider if your business would work best as a franchise. Not every business concept would make a good franchise system. As well, setting up a franchise is a long-term endeavor and one that involves a lot of people, as well as their hard-earned cash.
You want to be a responsible franchisor, not just a franchisor. A franchisor has ethical, moral and legal responsibilities to the potential franchisee. You are asking people to risk what they have acquired over time. The franchisor's responsibility in the relationship is to offer: a sound business concept and operating system; capital to grow the business; a marketing plan; a strategic plan to grow the brand; complete training and support in running the business; a plan to anticipate and increase growth within a targeted market; and a culture that franchisees can respect.
The franchisee's responsibility is to operate the business according to the franchisor's standards, find and work with customers, and supply capital to the franchisor in the form of initial franchise fees and ongoing royalty payments.
Building A Successful Franchise System And Becoming A Successful Franchisor
To franchise or not often depends on where your business is at the time. Certain steps are necessary and must be put in place to protect ones self. Essentially, a franchisor needs an original business concept with a support system that builds the business. The franchisor sells agreements to people to develop the brand, and these franchisees use this system to acquire and keep customers. This seems rather simple until you consider all that goes into the franchising way of doing business.
Some of the elements a franchisor must have in place to be successful are:
- An original business concept that can be duplicated and create standard results across all franchise units.
- A broad geographical appeal.
- A broad market appeal.
- A well prepared business plan possibly put together with the help of a franchise consultant.
- Legal documents and registration-clearing the legal hurdles.
- Franchisee recruitment and screening process-develop a franchisee profile.
- Identify a growing market and develop a sales plan.
- Market share-dominating a specific market is the goal of any franchisor.
- Adequate capital to develop your business infrastructure and carry the business until it begins generating revenue.
- A highly developed training and support program.
- Research and development to anticipate your client's needs.
- Unit profitability. Be concerned the economics are enough to cover your expenses but not so high that your franchisees cannot stay in business.
- Management structure that will develop and implement strategies; be an inspiration to franchisees; and satisfy investors.
- Identify franchise territories and assign franchise units.
- Supplier and Vendor relationships create standards.
- Equipment for each unit.
- Field support staff -- the eyes and ears that identify and defuse problems with franchisees.
- Ethical culture and decisions that franchisees can respect.
- A franchisor needs a strong business infrastructure as well as a clear concept before signing a franchise agreement with its first franchisee.
A misconception is that you make money as soon as you start franchising. Realistically, you are lucky to break even. An adage that makes sense is that it may take 10 franchisees to become a profitable franchisor until then you will need to use your own resources to provide your support.
As you successfully expand, the real money is in the stream of royalties. Royalties are calculated in two ways. The most common being a percentage of the franchisee's gross sales (usually 5 to 10 per cent), the other is an annual flat fee.
Does Your Business Fit The Definition Of A Franchise?
There are several reasons you may decide to franchise your business. One reason is that you believe your concept is unique; however, before you decide to clone your business and transfer your idea to someone else you must be sure that it will work.
Franchising is a complex process. You need to have put your concept in the marketplace and overcome problems. Is your idea something you are selling yourself on, or is it something you can actually deliver?
To see if your business can fit the definition of a franchise, test it by opening up additional locations of your business to develop the support system that is so integral to franchising. You will need to build a new unit, develop an operating manual, work out agreements with suppliers and vendors, and so on. This will help you understand a bit about what it means to be a franchisor. If your business just cannot support another unit, it should not be turned into a franchise system.
Franchising Is A Lot More Than Having A Good Idea!
Asking for help is not a sign of weakness -- it is a sign of strength. Instead of thinking that seeking advice is a sign of weakness, see it as a sign of growth and maturity. Expert advice can help you build your business if you approach it wisely.
Franchise support services are an important component of the success of franchisors and franchisees alike. Look for these experts who specialize and focus their business on the franchise industry. Find professional help to guide you on your journey through the exciting world of franchising.
Franchising is a lot more than having a good idea!
John Bauer, a 20-year veteran of franchising, shares his extensive knowledge on his website http://www.whyfranchising.com. Start right. Finish successful. Here's how.