Can YOUR business be franchised?
Franchising is a proven method of business expansion and has been used successfully in almost every business sector. Does your business have what it takes? Tony Urwin outlines his 10 franchising essentials
Before beginning a Franchise Development Programme, FDS Consultants undertake research into your business to determine its suitability for franchising. We need to be sure that this is the best route for the business, that the management is prepared to cope with the changes franchising will bring, and that the timing of your launch will maximise the chance of successful franchisee recruitment. A business is ready for franchising when it can demonstrate the following essential factors:
In order to compete effectively in the busy franchise marketplace, a franchise organisation must be adequately differentiated from its franchised competitors. This could be a distinctive product or service, a reduced investment cost, a unique marketing strategy or specific target markets.
Your company must be credible in the eyes of prospective franchisees if they are going to spend their money on a franchise. Credibility can be reflected in a number of ways, such as the size of the organisation, the number of units, the number of years in operation, the quality of the publicity, consumer awareness of your brand, the success of the pilot operation, and the strength of the management team.
3. Market trends and conditions
Market analysis acts as a general indicator of success for a franchise and should be used to refine long-term plans. It is important that the market for the products or services is viable in the medium to long-term. Is your market growing or consolidating and how will that affect the business in the future? What are your franchised and non-franchised competitors doing? Are you likely to be able to find a buyer for the franchise network when you decide to move on?
4. Successful pilot operations
You can't franchise an idea. A pilot operation is necessary to demonstrate that your system is viable. It will also act as a testing ground for new products, new services, marketing techniques, merchandising, and operational strategies in the long-term.
5. Transferability of knowledge
It is vital that it is relatively easy to teach a franchisee how to operate a replica of your business. You must also be able to provide this education in a relatively short period of time. If the business is complex you will find that your recruitment will be restricted to prospective franchisees that are already experienced in your field, thus reducing the marketability of your proposition.
6. Documented systems
All successful businesses have systems and in franchising these must be documented and communicated effectively to your franchisees. Company policies, procedures, systems, forms and business practices should be presented in a comprehensive and user-friendly operations manual, which is provided to franchisees as part of their franchise package.
7. Affordability and return on investment
A franchised business must be affordable to its prospective franchisees and profitable, both for the franchisor and the franchisee. In addition to this, the franchise must provide enough profit after payment of fees to the franchisor for the franchisee to earn an adequate return on their investment of time and money. This profitability is relative and must be measured against the investment to provide a meaningful figure, with franchisees achieving a significant return on investment by the third year of trading.
Successful franchisors are committed to building long-term relationships with their franchisees that are mutually rewarding. There is a strong link between the strength of these relationships and the profitability of the franchise. Strong franchisee relationships enable the franchisor to sell their franchises more effectively, introduce necessary changes into the system more easily and motivate franchisees to provide a consistent level of service to their customers.
9. Strength of management
The most common contributors to the failure of start-up franchisors are understaffing and a lack of experience at the management level. New franchisors often try to do everything themselves, taking on roles in which they have little or no experience. Consider how you will cope with the resource demands the franchise will bring, such as franchise marketing, lead handling, franchise sales, training and multi-operations management, and build a strong team to support you.
Franchising is a relatively low-cost means of expanding a business but it is certainly not a no cost option. A franchisor needs capital and resources to implement a Franchise Development Programme and to recruit franchisees. There should also be adequate finance available to support the growing franchise network, especially in the early years.