Franchising Readiness Tips

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Do I still need a business plan?

Keep Your Business Plan Current

It's important that the franchisee has a business plan, but it's equally (or more) important that you do. Your business plan is a living document that provides direction for growth and a framework for operations. It should include the current year forecast, a 5-year forecast and a 10-year forecast.

Every month you reconcile actual versus forecast and thereby gauge performance. This way you know if there is a problem and you know in time to respond with a corrective action. If you operate your business – and your franchisees – without goals or measurements you're not going to be able to stay competitive. The market changes constantly. You must realize the changes as they occur and be in a position to capitalize on them.

If you decide to expand farther and need investors or if you take your company public you will have to have a current business plan. Don't let this slip – it's too critical a document.

   
Can foreign franchises be negotiated?

Negotiate Foreign Franchises

Establishing foreign franchises takes more work than establishing domestic ones, especially when it comes to negotiating. The key to negotiating is building a trusting relationship. Make sure your foreign prospect understands their obligations – and you understand yours. Language is often a barrier, so review everything – and then review it again – to avoid miscommunication.

Keep cultural differences in mind when you're negotiating. It's not uncommon for people to want to establish friendships before getting down to business.

Be flexible. Fees will likely be a bone of contention. Instead of setting a bad precedent by reducing the fee, add items to make the front-end fee more palatable:

  • Extra training
  • More on-site support
  • Translation of materials
  • Additional advertising
  • Discounts on initial inventory

   
Should I expand internationally?

Expand Internationally

Expanding internationally before you have a domestic base is really not a good idea. If you are going to do it, proceed carefully! Making a mistake in selecting your franchisee overseas will be more devastating to your expansion plans than making a mistake domestically. Do not rely on a broker. If you do have to use a broker, limit the broker's role to making introductions.

You can rely on national franchise associations, local franchise attorneys, local office of accounting firms, knowledgeable consultants, embassies, Interpol and international credit and reference services. Some search options are:

  • Trade missions. The U.S. Dept of Commerce and the International Franchise Association co-sponsor three trade missions a year. Each lasts 10-12 days and spans 3-4 countries.
  • Trade shows. The Annual International Franchise Exposition draws thousands of foreign visitors in search of franchise opportunities.
  • Embassies. Embassies can help network and qualify locals. Also, try joint chambers of commerce and industry associations
  • Referrals. Contact franchise consultants and attorneys with affiliate offices in foreign countries.
  • National Franchise Associations. Many countries have established national franchise associations that can help you understand franchising in their countries, provide help in locating franchisees and suppliers and provide guidance on local regulation.

   
What resources are available to a new franchisor?

Know Your Resources

There aren't a lot of resources for the new franchisor, and there isn't anything that details the process from start to finish from a franchisor perspective. There are resources that offer insight into different phases of the process. It's just a matter of finding them. Take the time to look through the resources listed here. See what kind of information is offered and make a note of it so when you need it you'll know where to look. If you find contradictions in the information – and you will – check with your attorney before proceeding. This is not a process you want to do wrong or over.

Franchise Organizations: There are organizations dedicated to promoting franchises. The largest of these is the International Franchise Association. They have a wealth of information on the website: www.franchise.org. Some of the information is free of charge and some requires enrollment and/or payment.

Franchise Advertising Portals: Franchise portals are in business to advertise franchise opportunities and they also provide articles and information to differentiate them from their competition. FranchiseGator, FranChoice and Franchise Direct all have resource centers on their websites.

Franchise Consultants: These are businesses offering their expert services to help you franchise. They are typically a coalition of professionals and you can contract them to customize your franchising plan. Fees and services vary widely, so comparison shop if you're going to use a consulting firm. FranCorp, iFranchise Group and The Entrepreneur's Source are all established franchise consultants.

Magazines: There are magazines dedicated to promoting franchises. Many of them offer how-to articles and have sections of their websites dedicated to the franchisor. Entrepreneur Magazine, Inc., and The Franchise Handbook are publications of interest.

Books: Most books that help the franchisee also have sections for franchisors. If they don't, you can read the books and reverse positions – if it's of importance to a franchisee, it's something you need to consider and offer.

   
Do I know how to lead?

Embrace Leadership

There are literally thousands of texts devoted to the subject of leadership. Everyone knows it is paramount to success. In morale surveys, it's interesting that most managers think they are good leaders, but most employees feel they could lead better than their managers!

You have a two-fold leadership challenge. You have the traditional corporate leadership role where you ensure your business delivers on its promises to customers, behaves responsibly and makes money. You also have the challenge of coordinating the talents and ambitions of your franchisees – people who are leaders by nature.

Some guidelines to keep in mind for leading effectively are:

  • Have a clear vision.
  • Be believable.
  • Maintain your integrity.
  • Embrace change.
  • Manage conflict, when necessary.
  • Treat people with respect.
Of course there's a lot more to being an effective leader than using checklists and reading leadership articles. Part of it is being natural and consistent in everything you do. Part of it is personality. Part of it is learned and part of it is innate. Your goal is to be receptive to opportunities that improve your leadership abilities.

   
Does everyone in my support network know what I'm doing?

Count On Support

You have a great support network made up of loved ones and friends. They were helpful when you started your business and they're proud of your success in operating it. Now you're getting ready to franchise. Do you still need them? YES! In fact, you're going to need your support network more than ever before. Not only will your time and energy be divided between operating your business and establishing your franchise, you're also going to be under funding and timing pressure.

Keep the lines of communication open with the important people in your life. Talk freely about the pressures you're facing, the demands on your time and about risk. After all, there's no guarantee you'll be able to sell a franchise after you establish it.

Let them know why you want to make this commitment and what your hopes and dreams are. Tell them of things you may ask them to do – include both time and money investments. Make sure they're comfortable with your decision to move forward and expand. They're indispensable to you and you're going to need them.

It's not just you who is investing in expansion. It's also everyone who is close to you.

   
What if my business isn't ready to expand?

Examine Your Business

Sometimes a business has a great product or service but it's just not ready to expand. If you try to franchise before your business is ready, you risk crippling your operations and cash flow. These are the questions you need to be able to answer before committing to a lengthy and expensive franchising process:

  • Is it possible for others to duplicate your success? If your success is wholly dependent on your own flair and skills, franchising is not going to work.
  • What is your unique selling proposition? Why should people want to become franchisees of your business instead of starting their own? What is franchise-worthy about your process or service?
  • Do you have a system that can be duplicated and monitored? Do you have an operations manual? You must provide proven guidelines for the operations, training, marketing, financial and legal aspects of the company.
  • Do you have multiple locations now? Is your success dependent on local conditions or can you transplant to another location? Has your system been tested?
  • Do you have experienced personnel? You need talented and able staff to recruit, train, communicate with and support franchisees.
  • Do you have a protectable trademark? Licensed trademarks are the trade identity of the franchise network.
  • Do you have the money you need to franchise? Developing a franchise structure is expensive and all costs are incurred before you receive any fees from new franchisees.

   
How important is my autonomy?

Recognize Your Autonomy

You need to evaluate how important your autonomy as a business owner really is to you before you offer franchises. One of the benefits of owning your own business is the freedom you have to do what you want to do. You can bring out a new product, redecorate and change your prices without consulting anyone.

When you are in a franchise situation all that changes. You will have to test new products in your store before sending them on to franchisees. You'll need standard pricing. You cannot redecorate or update the store whenever you want. You may be able to afford it, but your franchisees probably can't.

Every decision you make will impact the entire franchise system, and that takes some getting used to. If you don't think you can operate with the entire system in mind, don't franchise.

   
What are common elements of franchise success?

Aim For Success

There are several elements that are critical to a mutually beneficial and successful franchise. Keep these items in mind as you go through the franchising process from inception to sale to maintenance.

  • A franchise relationship must have an effective structure.
  • A franchisor must have operating and management systems, products and services that benefit franchisees.
  • A franchisor's management philosophy and culture must be consistent with the franchise relationship.
  • A franchisor must expand its network at a manageable rate.
  • A franchise must maintain its value to franchisees.

   
What are my benefits in franchising?

Realize The Benefits Of Franchising

Your expectations for franchising should match the known benefits to reduce frustration and disappointment later in the process. Franchising provides the opportunity for stunning personal growth. Progressing from the role of a local business owner to a National Franchisor can be extremely rewarding both personally and financially. Additionally:

  • Franchising solves the problems of obtaining capital and committed management talent to run new locations.
  • Franchising enables more rapid expansion in a shorter period of time than would otherwise be possible.
  • Franchising creates additional income streams from franchise fees and royalties.
  • A franchised company is less vulnerable to cyclical fluctuations and outlet failures.
  • Franchised networks realize economies of scale in purchasing.
  • Franchising rapidly builds a much larger identity that draws more customers to all locations.

   
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Susan Sayour