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FRANCHISING YOUR BUSINESS
Your business is successful. You may have one
or several locations and you now believe that you are ready to
expand your business. Franchising appears to be a popular form
of business development, but how does one begin to consider the
possibility of franchising? In this section, we examine what you
need to consider and to implement when structuring a franchise
system.
Checklist # 1
Considerations When Franchising a Business
Checklist # 2
Components for Successful Franchising
Prospective
Franchisors
CHECKLIST # 1 - CONSIDERATIONS WHEN FRANCHISING
A BUSINESS
Businesses often turn to franchising as a means to generate capital.
There are, however, a myriad of issues that prospective businesses
should first consider before they adopt the franchising model.
Among the issues that a prospective franchisor should address
before deciding on implementing a franchise program are the following:
Prototype. How successful is the principal (i.e.,
prototype) location(s)? A prospective franchisor should be operating
at least one profitable operation before franchising its business.
Replication. Can the prospective
franchisor readily replicate the business so that others (i.e.,
franchisees) can benefit from the experience and advice of the
existing company?
Rate of Return. Can the prospective
franchisees generate a reasonable rate of return on its investment
after paying the franchisor any royalty and advertising contribution
payments payable to the franchisor?
Operations Manuals and Other Documentation.
Has the prospective franchisor developed detailed operations
manuals for its operations and training courses and materials
so that potential franchisees can easily learn the system and
be trained when entering into the system?
Sufficient Demand. Is there
sufficient demand for the product or service that would justify
expansion by way of franchising?
Advertising and Marketing Advantages.
Is the franchising model capable of offering marketing
and advertising advantages to prospective franchisees? Can the
prospective franchise system take advantage of the synergies associated
with mass advertising campaigns?
Trade-Marks. Does the prospective
franchisor have a trade-mark and other unique characteristics
that differentiate itself from its competitors? Is the franchise
sufficiently unique to attract potential franchisees to the system?
Adequate Resources. Does the
prospective franchisor have the necessary resources and the drive
and commitment to develop and manage the franchise system in addition
to running the day-to-day operations of the core business?
Financial. Has the prospective
franchisor examined the costs associated with implementing the
franchise conversion strategy, the cost to open each franchised
unit, and the ongoing costs related to the support and maintenance
of the franchise system?
A prospective franchisor is strongly encouraged
to consult with competent franchise lawyers before seriously engaging
in any efforts to launch a franchised business. Please feel free
to call Joseph Adler
to arrange for a free initial consultation.
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CHECKLIST # 2 - COMPONENTS FOR SUCCESSFUL
FRANCHISING
To succeed as a franchisor, your system should exhibit and incorporate
some or all of the following components:
- A tested business concept with some reasonable assurance
that it could be replicated.
- Training ñ the ability of the prospective franchisor to
convey the system in a meaningful manner.
- Site selection skills.
- Research and development opportunities.
- Enforceable franchise documentation.
- Disclosure document preparation, maintenance and compliance.
- Co-branding possibilities.
- Financing opportunities for the franchisor itself and arranging
financing with financiers.
- Sourcing of supplies, imposing sourcing restrictions and
obtaining better pricing through economies of scale.
- Field service expertise.
- Franchisee recruitment programs.
- Advertising and promotion.
- Customer information mining (e.g., mystery shopper programs).
- Internet presence and extranets.
- Effective communication with franchisees.
- Dispute resolution techniques.
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