Is your biz ready to franchise?

by By Entrepreneurship Expert Roger Pierce, www.BizLaunch.ca, January 2009

Franchising, with its ability to quickly develop a national or even global network of outlets, was one of the economic success stories of the twentieth century. The concept became inextricably linked with fast food thanks to the incredible success of McDonald's, but more recently, companies from a variety of other industries have used the franchise model to accelerate their expansion. EBGames, Jenny Craig, First Choice Haircutters, and Curves have expanded rapidly through franchising. If your business is humming and ready to grow, expansion through franchising is one option to consider.

The Rationale for Franchising
Every time your company expands it takes on significant risk. You need to consider how much capital will be required to enlarge your infrastructure as well as other associated costs. You may require more equipment, another level of management, and a potentially large investment in human resources. Each new location needs to be sourced, built, staffed, and tooled. This time-consuming and painstaking process could be well served by a franchisee willing to become part of your enterprise.

Cloning your business as a franchise allows it to grow as you envision it. It also gains the support of independent business people: your franchisees.

Proving your Business Model
Any business takes time, generally three to five years, to prove itself. Prior to franchising, your business should also have operated a sufficient number of outlets to prove it has a viable concept which can be duplicated. By operating numerous company-owned outlets you are:

• Showing demand in various markets
• Developing systems which are repeatable
• Defining clear management procedures
• Proving logistics plans
• Developing economies of scale with marketing and promotions

Streamlining the opening of each new location fine-tunes operating systems and procedures, and defines the necessary training needed when unrolling franchises in the future.

Be Well Prepared
Preparing a company for franchising takes time, sometimes several years, and needs to be planned properly and financed adequately. Each outlet owned and operated by your company serves as a test case and helps work the bugs out of the systems. Since the day-to-day operations will be transferred to your franchisees, your new job will be to run your franchise operation:

• Take proper professional advice ? consult a lawyer, banker, and accountant
• Have the franchise agreement written by an experienced franchise lawyer
• Choose your franchisees wisely, as they will represent your brand
• Create an accurate and complete operations manual to save time and costly misunderstandings.
• Document your training processes thoroughly
• Set your franchisees up for success: have realistic forecasts and ensure that your agreements support their profitability
• Focus on maintaining standards across the franchise network
• Realign marketing and advertising to the new expansion
• Make sure your trademarks, brand names, and intellectual property are legally protected

What are the Advantages of Franchising?
Franchising combines the resources and expertise of a large organization with the motivation and hands-on willingness of individual owner-managers. Benefits to the franchisor include:

• Achieving expansion through using franchisees? capital
• Shifting responsibility of outlet operations to the franchisee
• Quick and concurrent growth with each new franchisee
• Reduced staff requirements and concerns
• Scouting, building, and financing outlets are handled by a motivated owner-manager

Do You Have What a Franchisee is Looking For?
Someone looking to purchase a franchise likely wants to own their own business without enduring the risks of starting one from scratch. The average stand-alone small business has an extremely high chance of failure in its first five years of operation, while a franchise, year by year, proves to have a much greater success rate. The franchisee is also looking for the business procedures needed to ensure success so that they can get results in a fraction of the time it takes to build a going concern from the ground up. Attracting motivated, capable owner-managers is the key to your franchise?s success, so it helps if you can ensure that:

• You have a proven track record with solid public endorsements
• You are unique or noticeably different from other businesses in your market
• You have a sustainable competitive advantage
• Someone can learn to operate your business in a short period of time
• It is sufficiently profitable to satisfy franchisees, after deducting royalties
• Your product or service is adaptable to many locations
• Your company is prepared to support your franchise network

The success of your franchisees determines your success
The process that prospective buyers go through when considering a franchise is like that of purchasing any other product: identify a need, research, evaluate, purchase, and conduct post-purchase analysis. Therefore, it is important to clearly communicate what they are purchasing when buying a franchise from you. It is in your best interest to:

• Provide audited performance statistics of your business
• Provide access to franchisees for consultation
• Encourage prospective franchisees to obtain legal advice to understand the franchise agreement thoroughly

Franchising can be a win-win opportunity. The franchisee gains the autonomy of being self-employed along with the stability of being part of an already successful organization. Their franchised business can compete with larger outfits. By building a strongly motivated owner-manager network, the franchisor expands rapidly into new markets, has less overhead than traditional chains, and has less capital risk. With the right preparation, your company could be the next global franchising success story.