It’s All in the Timing

In the coming months, we will take a comprehensive look at franchising. To guide businesses through the process, we talk to experts in the franchising industry – Here, in the first of our special features, we look at how to determine the right time to franchise your business.

It is common for owners of successful businesses to dream of opening multiple outlets and conquering their market sector. In the past, without large amounts of capital, this was a dream that usually went unfulfilled.

The phenomenon that is franchising has changed all that, with national, and even international penetration within the reach of any business, providing you plan correctly and have a solid business proposition.

Franchising has undoubtedly revolutionised the small business market in recent years. Nowhere has the impact been greater than in Australia, which has the highest number of franchises per head of population in the world.

For businesses looking to expand, franchising has many attractions. Firstly, franchising enjoys a small business success rate more than two-and-a-half times greater than standalone small businesses.

Other benefits to the franchisor from selling franchise licences include rapid market penetration without major capital investment and risk, lower costs of stock afforded by mass purchasing for multiple units and revenue gained from the sale of franchises and ongoing royalties.

The calibre of businessperson drawn to become franchisees is generally very high. They are often entrepreneurs with the vision to spot a good opportunity, and may be superior to the managers a company could afford to hire to run a branch.

The demand for franchises is at an all-time high, with the upward trend set to continue in the next five to 10 years. Much of this demand is likely to come from employees in their 40s and 50s who have fallen victim to downsizing of major companies. With many of these people finding that new and challenging jobs are scarce, a great number of these individuals find that the route to entrepreneurship lies in a franchise.

First Steps

So how do you decide when your company is ready to franchise? A small business should operate for at least five years before even considering the prospect of franchising. This way it can establish that it has a viable concept, ongoing market demand, replicable systems, and a logistic, management, marketing and training structure capable of supporting franchisees in a variety of locations.

During that five-year period, or however long your business chooses to take before trying to become a franchiser, your business will not be standing still. You should open and operate additional outlets to determine whether your business is a viable franchise.

You must ask yourself what sort of return your franchisees are likely to get for their investment, as the less attractive the returns, the more difficult it will become to attract the brightest, or indeed any, franchisees. Owning and operating additional outlets prior to franchising will provide you with the information on how well outlets perform, which you can then demonstrate to potential franchisees.

In order to operate as a franchiser, the company concerned must have the right people in place to provide support, training and management to franchisees. Potential franchisers must have such experienced personnel in place before becoming a franchiser, either by providing additional training to current staff, recruiting from outside the company or a combination of both.

The staff of the franchising company will act as consultants to its franchisees and must possess skills such as leadership, planning, team building, decision making, problem solving and delegating.

Any business that is considering becoming a franchiser should own and operate at least one pilot outlet to test its viability. This gives the potential franchiser the opportunity to test and refine the concept of the business to be franchised.

Operational systems and controls, decor, designs, layouts, equipment, training methods, advertising and marketing programs, products and services, job requirements and descriptions and financial models should all be examined at this stage.

By doing so, problems can be identified early, enabling the company to develop solutions before embarking on a full-scale franchising venture. It ought to provide the business with a clear indication as to its suitability to becoming franchised.

The business that you are looking to replicate must also be a success as a standalone outlet, as well as being distinctive and easily replicable.

Get professional advice from a number of quarters – solicitor, banker, accountant, franchise consultant – and have your franchise agreement written by a solicitor experienced in the area.

Also take time to write an operations manual, have first-class training, choose your franchisees very carefully and maintain good ongoing relationships with them, focusing on their satisfaction and profitability, as this will impact on your own.