Tips on Franchising an Established Business

Franchising is increasingly being used by businesses as they realize the benefits that can be harnessed from the arrangement. Many successful franchises have established extensive operations throughout the country.

To growth oriented businesses, the main benefits of franchising include access to franchisee capital to fuel expansion and, local managers who are more motivated to perform because of their investment tied to the local business. In addition, fast growth enables some franchised chains to achieve cost savings in areas such as purchasing and advertising, due to greater size. Yet, even though many franchised chains have grown considerably, there are also plenty who have either stalled or stagnated, decreased in size, or failed. Even the big fishes such as McDonalds have often gone through periods of intense hardship at some stage during their development.

Creating a franchise system of quality is a complex, time consuming and an expensive task. Franchisors need to excel in 2 markets. The first one is the market for franchises; second is the market for end-users of the products and services. Therefore, the franchisor must develop a business concept that is attractive to customers and profitable enough to generate sufficient returns to franchisor and franchisees over the long-term. In addition, the franchisor must develop a franchise format that is attractive to potential franchisees, effective in replicating the original business concept, and provides franchisees with the necessary ongoing support and skills necessary to meet the changing needs of customers and the wider market environment.

It is no surprise then that research tells us that, when considering franchising, a business should be distinctive in its image and/or operating procedures, boast high gross margins and a simple easily-implemented business concept. Before franchising, it should also be proven in a number of locations to ensure all the imperfections are ironed out and that it is successful because of the concept. This process also helps in building brand recognition and a trading history which is very important for attracting franchisees.

There are 3 critical documents that require developing for the franchise. These include:

1. The franchise agreement: detailing the rights and responsibilities of the franchisor and franchisees;
2. Operations manuals: specifying how the franchise should be run;
3. The franchising prospectus: detailing the franchise opportunity for interested parties.

Mistakes in the franchise agreement are extremely difficult to change and can make or break a franchise. Therefore, obtaining specialist legal advice from franchise lawyers as well as specialist-franchising consultants is absolutely essential, and can also be of great benefit.

The tasks of managing a franchise system are challenging and quite different from managing a centrally owned chain of businesses. The challenges are wide and numerous.

Here are a few examples of problem areas that a franchisor could encounter: establishing and maintaining a support structure to assist franchisees, attracting and selecting suitable and sufficient franchisees, maintaining relationships with these franchisees, adapting the business concept and franchise format to changing market conditions, monitoring standards and supporting struggling franchisees.

Clearly, franchising is not an arrangement to be taken on flippantly. While there are rewards for those with a successful business concept, dreams of success must be recognized with the cold hard reality of planning, establishing and managing a business concept, a franchise format as well as a network of franchisees. Yet, once you’re there, you will never look back.

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