Is Your business a franchise opportunity?

Why franchise?

Businesses are able to grow more quickly through franchising because it uses the capital, local knowledge and commitment of individuals who are in business for themselves.

Franchisees provide the money to grow a franchise network with minimal additional risk of debt or funding costs. They also provide a means of attracting and retaining the people needed.
Franchising captures the commitment of someone who is in business for himself/herself and who has an investment in the business and a stake in the profits.

In addition, finding new sites, negotiating leases, securing finance, arranging fit-outs, recruiting and training staff, as well as purchasing equipment and inventory all takes time. The franchisor is able to provide direction and guidance while the franchisee does the legwork.

Thus, franchising not only allows the franchisor financial leverage, but it also allows better leverage of resources.

Another advantage of franchising is that it offers a means of exporting intellectual property (a franchise system) in any industry.

Notable New Zealand examples include Fastway Couriers, The Fish Shop (fish and chip restaurants) and Entrepreneurs Success Programme (business coaching). As such, franchising is an option that more companies should explore.

Identifying businesses that are "franchisable''

Franchising is a relatively flexible format, and just about any type of business can be franchised, providing  it meets some basic characteristics:

It needs to be credible. Does the company have experienced management, a track record over time, and is the concept proven? Has it achieved good local press or public acclaim?

It must be unique. Is the business adequately differentiated from its competitors? Is it marketable as a business opportunity, and does it have a sustainable competitive advantage?

It needs to be teachable. Are there systems in place and documented operating procedures? Could someone learn to operate the business in three months or less?

It needs to provide an adequate return. If a business is not able to generate a 15-20 per cent return on investment after deducting a royalty (typically between 4 and 8 per cent), it is going to have difficulty keeping franchisees happy.

Businesses that meet these criteria could be good candidates for franchising.


Steps for franchising a business.


The first step is to undertake a critical assessment and create a franchise development plan in which the feasibility, appraisal and detailed design of the system is carried out.

This involves a review of the existing business, market and competition, an evaluation of franchise structural options and a detailed definition of the relationship between the franchisor and franchisees.

The plan must also take into consideration the numerous issues confronting a new franchisor. For example, speed of growth, territorial development, support services, staffing and fee structure, to name a few of the most important issues.

The entire plan needs to be subjected to rigorous financial analysis and scrutiny to fine-tune the business's growth strategy.

Once the plan is in place, proper documentation is necessary. The two most important documents are the Franchise Agreement and the Franchise Operations Manual.

The Franchise Agreement gives legal effect to the franchise relationship and governs the fundamental rights and obligations of the parties. There are literally hundreds of different business issues that must be addressed in a good franchise agreement, and the decisions made regarding these issues will ultimately dictate a franchisee's success.

The Operations Manual provides a comprehensive statement of procedures covering the technical, operational and management aspects of the system, including the checklists, policies, procedures and tactics that will allow these systems to be uniformly executed and enforced.

Finally, new franchisors must develop the ability to market and sell franchises. This requires knowledge of how to attract prospective buyers and the necessary materials (brochures, mini-brochures, videotapes, DVDs, and so on) that will help make the sale. It is also important to be well educated in proper sales, disclosure and compliance techniques.

New franchisors quickly learn that when they turn to franchising, they have entered a completely different business. Regardless of how they make money as a franchisor, they will have two roles: selling franchises and servicing franchisees.

Of the two, ensuring the success of franchisees is the most important. Without successful franchisees, no franchise system will survive, much less succeed.

For more information  contact:
Ivan Tava, consulting manager, Philadelphia Consulting Group NZ Ltd, a member of Link business brokerage. Ph: (09) 523 5150.