IS FRANCHISING AN OPPORTUNITY FOR YOUR BUSINESS
Franchising is a different business from the business you are currently in. Therefore, just like anyone who enters a business they are not experts in you need to have good advisors and people that you can trust to help you be the most successful you can be.
That is harder than it sounds. There are several, if not many, franchise consulting firms that promise to do almost everything for a substantial sum of money. The problem is they are in the business of selling you a package of services and not telling you the honest truth about your business opportunities. Carefully choose your franchise attorney and consultant to make sure they have the credentials and that they will work within your budget. The last thing you need is to spend all your capital getting ready to franchise and then have no money to market and sell franchises.
Call their clients past and present, find out how they intend to help you market your franchise. They should have a clear plan of action from the day the first strategy is laid out to the launch and growth of your franchise business. We strongly recommend that you never use the “in house” attorney of any firm. You need to interview several franchise attorneys that specialize in franchising and see who you feel comfortable with. Even then never trust the attorney to understand your business and the franchise business well enough to structure your system for you. You need business advice and legal advice, one without the other is a mistake.
WHAT ARE THE ADVANTAGES OF FRANCHISING
Franchising is a regulated licensing procedure where your brand, operating systems, intellectual property and distribution system can be used by others to build a successful business. The franchisee brings management and capital to the business to start, and later they become a valuable part of the collaborative process that comes when dedicated people put their brains together for the common good.
There are other means to expand. You could raise capital, hire employees and expand with company owned stores. But we all know that raising capital is not easy and finding good employees may be even harder. Most franchisors will tell you that a good franchisee is dedicated, hard working and interested in improving the whole system. You probably already suspect that people who put up their own capital to build a business are more dedicated than those that are just employees.
WHERE DO WE START WITH A FRANCHISOR EVALUATION
We believe that a franchisor must have a win/win proposition for the franchisor and the franchisee otherwise the system will never work. We start with a spread sheet on your business and see how profitable it would be if you were paying royalties. Then we project what a franchise’s business would probably look like the first couple of years and see if they are getting a ROI that is reasonable after paying royalties.
Next we spread sheet what the franchisor can expect to receive, will the royalties actually adequately support the franchise system to be successful.
If all of this looks promising we then evaluate you, the franchisor. Franchisees view themselves as your partners. You see franchisee, they see partner. Therefore authoritarian franchisors do not tend to be successful. You need to be comfortable with a collaborative approach to business.
Next we look at the business to see where it can be geographically successful. Not all businesses translate well to other geographic areas.
Then we look at marketability. The franchise sales process involves logical or objective thinking by a franchisee and the more subjective emotional approach. The best franchisees study the business, the potential and the people they are getting in business with to reach an objective, rational conclusion. The final push to buy is often more emotional, will it give them the lifestyle they want, will it give them the prestige they desire, is it fun. Different people have different motivations so whatever the subjective emotional appeal is it needs to be evident early in the process of franchising.
There are other important criteria for franchising which include:
• Is the business easily teachable?
• Do you have proprietary information or product?
• Are there enhancements you can add year after year to keep the franchise vital and the franchisees happy to be part of the system?
• Can the franchisees get the capital they need to get into the business?
• Have you done multiple locations to prove the concept?
• How much buzz can the franchise create, the PR value.
• Can the owner/President walk away from the day to day operations of his/her business to run the franchise business, because it is almost impossible to do both successfully?
• Do you have a nationally registered trademark?
THE VIRTUAL FRANCHISE
We have potential franchisor come to us that want to start the franchise without a successful initial operation. Sorry, this is what we call a virtual franchise and is a dream not a reality. You can find someone else to help you with this franchise system.
WHAT KIND OF A SYSTEM WILL YOU HAVE
There are four basic models of franchising:
1. Single unit
2. Multiple unit
3. Area Development
4. Regional Development
You could add a fifth for international development called Master Development.
We could go into a long explanation of each one but the basic fact is that you need an expert to help you decide where you fit because each one uses a different model from day one. There are issues of management, motivation, franchise sales, long term value, growth and practicality that need to be considered.