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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:
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:
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.
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:
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.
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.
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.
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.
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.
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.
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.
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:
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: