Before The Sale Tips

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Should I require Non-compete Agreements?

Limit Competition

We live in a free market society and no matter how novel your product or service is you will still have competition. You don't want to train your competition. It is imperative that you require a Confidentiality and Non-compete Agreement from your franchisees. This should be referred to in the Uniform Franchise Offering Circular (UFOC) and be a separate attachment in the Franchise Agreement.

The Confidentiality and Non-compete Agreement requires the Franchisee to agree:

  • Not to disclose any confidential or proprietary information learned during training and employment. This applies during the training period and operation periods and indefinitely thereafter.
  • To return all written, printed or electronic information upon termination.
  • Not to open or consult in a competing business while under contract and for 2 years after termination of contract.
  • That while under contract the franchisor has exclusive rights to all ideas, improvement and innovations relating to the franchise business.
  • That the obligations under this Agreement are binding for their heirs and personal representatives.
Your attorney may add legal verbiage to the Agreement that protects you from differing laws in other states. Example: “If a Court finds this Agreement to be invalid or unenforceable because it is too broad in any respect, this Agreement may be narrowed by the Court to the extent required to be enforceable.”

   
Where should I expand?

Launch The Direction

You should decide early where you will expand through franchising. Typically, franchisors cluster locations within established markets because these markets have been successful. Adding franchised locations within an established market will generate additional funds for advertising in the market, thereby enhancing market share as well as helping seal out competition.

Sometimes established markets are not readily available. When deciding whether to enter areas where there are no existing units you should consider:

  • Your ability to service and supply the location.
  • Whether there is run-off value of your trademark or reputation that might precede the franchisee in the new locale.
  • The sale potential of the new market area.
  • The level of competition that exists in the new market area.
  • The population, income, retail sales and other demographic factors that may influence the success of a market area.

   
How does franchising effect my financial plan?

Project Financial Outcome

You need to know where you're going and if franchising can get you there. You have to create a financial plan projecting four years of anticipated growth in number or operating units, franchise fees, royalty income, expenses, profits and organizational requirements and costs. This plan is needed as an operating budget to know initial funding and cash flow requirements. This plan is also a requirement if you're going to obtain outside capital and investment.

   
What is the franchisee's financial situation?

Analyze Capital

In selecting a franchisee, you need to evaluate their financial situation. You want to know how they're funding the franchise and if they're going to be financially upside down upon purchase. You need to carefully consider the viability of the franchise and plan with the franchisee to achieve the best financial results.

Normally the franchisee's financial resources come from one of three sources:

  • Personal resources such as savings, home equity, cash values from life insurance, bonds, stocks, bank loans and retirement plans.
  • Other resources, such as lenders and investors, relatives and friends, small town and major regional banks, non-bank lenders, SBA guaranteed loans, lease financing companies, private capital and partners.
  • Franchisor assistance, such as offering help to prepare loan applications or directing franchisees to financing sources that have familiarity with the franchise and an interest in servicing qualified franchisees. You may even guarantee loans and commitments to lenders, defer part of the franchise fee, lease real estate and equipment, commit to equipment and inventory buy back, offer equity participation or match investors and operators together in a joint venture.

   
How can I communicate with my franchisees?

Communicate!

Think about how you want to communicate. You'll be the one setting the standards, and the more open and effective the lines of communication the more successful your franchise system will be. Remember, a lot of people who want to own franchises are frustrated with their current careers and one of the leading causes of their frustration is lack of communication between levels.

So you need to carefully plan systems of information sharing, recognition and reporting. There are several methods of communication that can be successfully used.

  • Telephone contact is one of the most effective and practical modes of communication. Frequent contact helps to ensure closeness and continuity.
  • Mail, electronic communications, CD-ROM and video cassettes are common methods of providing and explaining instructions, supplying advertising and promotional materials, reporting sales figures and changes in personnel and more.
  • Newsletters are useful in explaining various activities within the franchising company, recognizing the top sales zone, expressing the opinions of franchisor management, announcing new franchisees and presenting other information of a positive and helpful nature.
  • Personal visits are good public relations tool that can be used to encourage and uplift the spirits of franchisees and their employees.
  • Franchisee group meetings are one of the most beneficial forms of support for inexperienced franchisees and can encourage the sharing of experiences, techniques and advice by the more successful franchisees in the network.
  • Franchisor sponsored meetings, such as regional meetings, semiannual meetings and conventions can be used to bring franchisees together on a regular basis to share information and provide training.
  • Other methods include: a franchisee advisory group, remembrance calendar, bulletins, manual changes and memos, letters soliciting advice or input, birthday cards, anniversary cards, holiday cards addressed to franchisee and spouse and retraining programs.

   
How is my organization structured?

Structure The Organization

You are responsible for developing and maintaining enough support to satisfy the needs of each franchisee and still allow you to operate efficiently and effectively. You will achieve this balancing act by carefully structuring your organization.

To ensure effectiveness, you will need a clear organizational chart showing the interdependence of each department. The chart should include required jobs, staff necessary to perform the jobs and the criteria for selecting and hiring qualified people.

You must determine the authority and responsibility for each position, avoiding confusion that can occur if responsibilities and authority overlap. Clear compensation levels have to be established and published.

After you've set up the organization's positions and compensation levels you can begin training. You'll need effective training programs for managers and staff. Initially your organizational chart may have a lot of “to-be-determined” slots. That's okay. You're in a start-up phase and that's to be expected. It's still important to have the organization in place so you can support your franchisees as you expand.

   
Is my supervisor important?

Choose The Best

Assuming you can't do it all – and you can't – your supervisor is going to be critical to both expanding and maintaining franchise units. In fact, since the supervisor must continually guide and assist the franchisee, the supervisor is possibly the most important person in the franchisor/franchisee relationship. As a designate of the franchisor, she ensures that the standards are maintained and detects and resolves problems before they become serious. She also strives to upgrade the abilities of the franchisee and her employees and often introduces new products, services and promotional programs. She is hands-on and ready to help out with all the problems the franchisee might experience. She gains credibility for the franchise system in the eyes of the franchisee.

Because of the importance of the supervisor to the continuing success of the franchised system, she should be trained in interpersonal and negotiating skills. She must know the concerns of the franchisee regarding profitability, advertising and marketing, employee turnover, etc. and must be able to coach, counsel and advise. She must also understand the franchisor's goals and philosophies as well, as she ultimately represents the franchisor.

   
How do I standardize all the administrative work?

Standardize Administration

It is easy to keep track of what is going on when there is just one location. As you grow, however, you'll have to keep track of a large number of people. You're going to be looking at a lot of paperwork, and it's going to help immensely if it is all in a standard format and it all flows to you at expected times and in established channels.

You can create forms and procedures that will help: ensure operational standards, minimize problems, supply informational needs, monitor performance, monitor adherence to standards and ensure the company's ability to audit the franchise operations.

Forms that are required typically relate to sales, cost of goods, labor costs, advertising expenditures and other major expenses. These include the cash register form, activity form, a weekly/monthly recap, the sales report, customer analysis form, advertising analysis form, operation analysis form and a report on major expense items.

Generic forms are available at office supply stores and through online document preparation sites. Many are free and all are modifiable.

   
Does everything have to be printed?

Control Documents

A comprehensive Operations Manual can be 1,000 pages or longer. Instead of printing it you may want to consider putting your manual online in a secure site on your web page. Your franchisees can download not only the manual, but also the changes as you make them. You can even electronically verify who has downloaded the manual and who has not.

   
Should I have an established advertising program?

Advertise!

You want consistent, professional advertising across franchise locations. Inconsistency confuses customers and erodes the brand awareness you're trying so hard to establish. One of the most important services you can offer your franchisees is an established advertising program.

Eventually, when you have enough sites to justify it you'll have a national advertising program that is funded by franchisee contributions. When you're just starting out with your franchisees, though, you'll most likely just require them to spend a minimum dollar amount on advertising at the local level. When they do this, they'll be using promotional materials that you provide. At a minimum, you'll need to have ad slicks, radio spots, commercials and brochures available – if not the actual media, then specific guidelines for each.

Do not allow franchisees to create and use their own advertising materials without your written approval.

   
Does my image have to be distinctive?

Market Your Image

Your public image is a key factor to induce a franchisee to buy into the program. Packaging is the identification that establishes your public image through graphics, logo, exterior and interior design and colors. As such, distinctive and appealing packaging is important to the success of both the franchised business and the franchise program.

Consider the whole and pay attention to the details as you utilize store layout, colors, furnishings, décor, fixtures, design, uniforms and graphics to establish a distinctive image.

   
What should be included in the Site Guidelines Manual?

Mandate Site Guidelines

To ensure brand continuity and customer recognition, all your sites have to look alike. While there may be a few differences due to location, the majority of the elements have to be the same as they are at the Corporate site. It's a good idea to prepare a separate manual of site guidelines for your franchisee. Any exceptions to the guidelines require your approval.

Some items to include in the Site Guideline Manual are:

  • Required square footage
  • A layout of the interior space, to scale
  • Required color scheme and décor
  • Required fixtures
  • Exterior and interior signage
  • Parking requirements
  • Accessibility requirements
  • Restroom requirements
  • Storage requirements
  • Lighting requirements
  • Window dressing requirements

   
What should be included in the Operations Manual?

Author Operations Manual

The franchisor must have effective systems and a sound structure in place to support the operations of its franchisees. One of the essential elements of a support package is the Operations Manual.

The operations manual documents all the major functions involved in opening and operating a franchise. It aids in maintaining product and service standards as well as overall uniformity. It should be a resource so complete it minimizes calls to the home office, forms the basis of a systematic approach to training.

It may include the following:

  • Introduction and history of the company
  • Company policies
  • Business practices
  • Standards, procedures and documentation for hiring of staff
  • Personnel administration
  • Job descriptions
  • Ordering supplies and outside services
  • Preparation techniques
  • Operating equipment
  • Cleaning, repairing and maintaining equipment
  • Maintaining premises
  • Pre-opening procedures
  • Opening and closing tasks
  • Customer service
  • Operation forms, record keeping forms and procedures
  • Bookkeeping and management control systems
  • Advertising and promotion
  • Safety and security
  • Reports to franchisor
  • Use of trademarks
  • Licensed software

   
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Kristle Jones