Is it time to Franchise

Thinking of franchising your business

Wondering about how to grow your business? Expand with more people at your current location, open new branches in other districts or cities. Perhaps you have wondered about turning your successful business into a franchise.

Growing your, already successful, business by creating a franchise can be a very rewarding endeavour to achieve exponential growth. If you are looking into the possibility of turning your business into a franchise, then read on.

A Franchise is

a contractual business model or relationship whereby an established brand, known as the ‘Franchisor,’ allows an independent business owner, or Franchisee, to use its branding, business model, and other intellectual property

What can be franchised

Just about anything can be franchised. From schools, yoga studios, cleaning companies, maths tutoring, pharmacies, bakeries, cafes, bicycle shops, apparel shops, spa’s, cosmetics, travel agencies, support services, dentists. If you have a good brand with an IP that is selling well, then you can franchise your business. If there is a consumer whether B2B or B2C it can be franchised.

Some of the franchises I have been involved with were in pest control, street food vendors, bioplastic manufacturer, green cleaning company and eco-cleaning products company.

Who is who in the franchise business?

• The Franchisor: they own the brand, the IP, product development, and business strategy. They set the tone, operate most of the marketing, design store fronts, interiors, and uniforms. They control pricing, SOPs and standards delivered. They own all social media and branding channels. They own the procurement and manufacture of products sold or serviced by their Franchisee’s. They offer various types of franchises to these partners:

1. The Franchisee: buys the right to operate and sell products from the Franchisor. They manage the day-to-day operations of the Franchisor’s brand in accordance with the SOPs and contractual agreements between the parties.
2. The Hub Franchisee: they contract the rights to operate and manage a number of sub-Franchisees. They could own all franchises for a country, a province, a city, or a business segment within or all of the aforementioned. For example, they could own the hotel segment for a district or country and mange sub-Franchisees for that business.
3. The Manufacturer: they manufacture your product under license, they market and sell the product in an agreed region or territory or to a specific business segment.

The financial model

Set a good fee structure that is consummate with your Franchisee’s earnings potential. Don’t price yourself out of the market, be realistic. You want to make sure that the business offers a good income for the Franchisee. If you have priced yourself out of the market, you won’t get any takers. Do some research on what other companies charge. Fees can be broken down into several elements:

Franchisee fee: This amount can vary, depending on the franchise. The average amount can be anywhere from $20,000 to $500,000. For niche recognised brands it can go into the millions. It all depends on your franchises earning capability. This fee is due on signing the Franchise Agreement.

Start-up costs: There are a variety of expenses associated with getting a new franchise going. These can include furniture, fixtures, decor packages, marketing costs, POS software, construction and architectural costs, promotional campaigns and more. Other costs could include inventory, equipment, insurance, employee training, business licenses, rent, landscaping, signage, etc. These need to be fully declared in the Franchise Agreement.

Royalty Fees: These fees, paid monthly to you the franchisor, are based on a percentage of their franchise revenues. They can run from 4% up to as much as 12% or more, depending on the type of franchise business you are running. Make sure you have increase clauses in your Franchise Agreements.

Types of franchises

There are various forms of franchises, with the most common form of franchise being the Business Format where a Franchisee buys the right to operate and sell under the franchisors business model. This would be a Starbucks, McDonalds, Kumon Maths, or Old Town.

You can outsource the production of your products via a Product Franchise, or you can license your business via a Master Franchisee who then manages a region, territory or business segment with sub-Franchisees owned and managed by them. Here is a description of the most common forms of franchises:

• Business Format: In a business format franchise, an individual can buy and operate a business with an established brand name like McDonald’s. Under this model, the new business owner will be supported throughout the initial business stages and for as long as he operates the franchise. The Franchisee benefits from your company’s business plan, operations documentation, branding and marketing.
• Master: this involves a franchise known as the Master Franchisee recruiting their own Franchisees in a specific territory. The Master Franchisee recruits, trains, and provides support to the lower Franchisees. In exchange for their efforts, the Master Franchisee will take around 50% of the initial franchise fee and royalties paid by the lower Franchisees.
• Manufacture: Under a manufacturer franchise model, the Franchisee has exclusive rights to produce and distribute a product in a specified geography for all or a specific business segment. Manufacturer franchises are mostly used in F&B ventures. The model can be used for any product that needs to be manufactured.
• Product: Product franchises allow for dealers to distribute goods for a manufacturer. The dealer pays a fee for the ability to sell and market these trademarked goods, which are also purchased directly from you. In some cases, the Franchisee doesn’t have to pay a fee but must instead sell a minimum amount of products. The simplest example of this is a car dealership that specializes in one brand of vehicles.

First considerations when franchising your business

The key thing to remember is that your business must be a successful one. A booming business with a recognised brand attracts serious Franchisees. No one wants to buy an idea of how you will build up your business and franchise process, they want to invest in a thriving business. Further, if your business is struggling, a franchise model will not help you fix your problems. You need to fix this before you embark on transforming your business.

If you are ready then, you need to make changes to your company to fit a franchise model. You will need to have all the processes well in place in your own business. You must have detailed SOPs (Standard Operating Procedure) in place which you have thoroughly tested. You do not want to have to adjust the objectives, product, branding etc whilst you are out selling franchises.

Strategic decisions

Now you need to think about how big you want this business to be. This will determine the steps and investments you will need to make as you build the Franchise model. Do you want to be local and have maybe 5-10 Franchisee’s or are you looking country wide with more than a 100 Franchisee’s signed up. Do you want to go cross border into new countries?

How are you planning to divide up your business into segments? For example, a Pest Control Franchisee I worked with, the owner had segmented their business into Hospitality, healthcare, education, commercial and domestic. As the rules and approaches were different for hospitals or schools and kindergartens versus offices and homes. They then further divided the country (population of 77 million) into regions then subdivided into territories within the business segments. So, they could have multiple Franchisees in one city all servicing different business segments.

You will need multiple strategies in place for how you will run your franchise business such as a Sales and Marketing strategy and a Franchise Acquisition strategy. You will also have defined operational strategies for your Franchisees on their customer acquisition strategy, sales strategy, hiring strategy etc.

The commitment between the parties

You need to be fully ready to roll out the business before you engage with anyone interested in running a franchise for you. This is not an ‘I’ll develop it as I go along’ type of business.

You must have all elements down on paper, fully tested and ready to roll out. Your Franchisee is investing their hard-earned savings or may have borrowed money from family and friends to do this.

This places and obligation on you to choose the best person for the business. You must afford them the utmost of support from your side. You cannot change business processes mid-flight, nor can you change your commitments without notice.

The Franchisee conversely has an obligation to fulfil the deliverables as agreed between you. This can be staff related, revenue and sales commitments. Payment commitments, brand commitments.

Both parties will have a series of commitments that must be met for this work well. It is the Franchisor’s responsibility to ensure all of this happens. All of this should be clearly detailed in the Franchise Agreement.

Your first steps towards franchising your business:

1. the business must be fully operational
2. there is a recognised brand
3. a team ready to manage the original store so you can concentrate on the Franchisee’s business
4. marketing strategy and plan in place
5. sales team ready to find the best Franchisee’s
6. training team in place
7. start-up support team in place
8. purchasing and price agreements are in place with vendors for the premisses set up
9. all legal document and agreement templates are ready
10. SOPs created and tested by your existing team
11. created a new legal entity as owner for the franchise
12. registered trademarks, IP, brand, and patents under new entity

In summary

There are a multitude of elements to making your franchise business a success. The overriding mantra from the Franchisor must be full control over all aspects of the business. Contracts, SOPs and a crystal-clear understanding and acceptance of how the partnership is to work between the Franchisee and the Franchisor are the key elements to your success.

The following elements are key to running your franchise business:

1. you have a known brand and successful business. A business that is portable to other locations and even countries.
2. it requires a level of control in the way the businesses are run.
3. it requires a high level of trust in the people with whom you sign a Franchise Agreement.
4. very clear and understandable contracts that sets out the obligations and responsibilities of both parties.
5. clear SPOs which both parties must follow.

You need to be sure that the Franchisee is willing to follow your SOPs. Being told how to run a business is not everyone’s cup of tea. On the one hand you want people with experience. They have that and then want input and add ideas into how the business is run. This point is key to success. You must ensure that you take your new Franchisee on scripted learning journey.

Train the new owner well, make them understand your business model. Get them to buy in to your way of doing things. Then train their team on how to work in the business. There is cost involved but you must do it or the whole thing will collapse, and your brand image will be impacted.

Finally, don’t do this alone, get expert help and advice on how to transform your business. Make sure you are comfortable with the level of control required to run your Franchise business. Be super focused on everyone following the guidelines. Be 100% clear on objectives and targets. Never allow the Franchisee’s to change or dilute your brand identity or image.  Do all of this and you will have embarked on an exciting new chapter for your business.