Franchising is a long-term business strategy, from the franchisor and franchisee perspective. Both parties are bound by a long-term contractual agreement, meaning early decisions on the nature of the franchise structure have long-term consequences.
For some companies assessing franchising properly in the first place means they don’t franchise at all. For others that do franchise, there can be a big difference between those who prepare and plan properly as compared to those who take shortcuts.
Typical shortcomings when vital stages are missed:
- The company is likely to have problems with roles and responsibilities, like what they do as a franchisor, what franchisees expect the company to do and what the company expects franchisees to do.
- The company does not understand or deliver key franchisor management processes.
- The company doesn’t know if their franchise royalty, other income streams and fees are structured appropriately, or even sufficient for their particular circumstances.
- The company has a Franchise Agreement that is not optimal for their situation and strategy.
- The company lacks a basic solid Franchise Manual, training systems and tools to help franchisors and franchisees understand and perform their roles – and protect the system.
Franchising is exciting in concept but it needs to be entered correctly in order to get great results, and avoid disastrous outcomes, from franchisor and franchisee perspectives alike.
For the benefit of everyone, franchisor and franchisee, a franchisor should make the necessary investments in both time and money to ensure they have solid foundations.
In general terms, key phases in a solid franchise development process include:
- Ensuring there is an underlying Successful Business Model that is capable of delivering great returns – sufficient to support a solid franchisee ROI, and with a reasonable number of franchisees, a solid franchisor ROI.
- Undertaking a specialist Franchising Assessment with detailed planning to consider a business’ franchising potential and, in the process, make many important decisions needed going forward. Such a Franchising Assessment involves considering many aspects and inputs in a methodical and structured order. Many decisions are then made that help inform an overall financial and operational assessment. The goal of the Franchising Assessment, of course, is for franchising to look highly appropriate, and there to be the prospect of solid and sustainable returns for both franchisees and franchisor alike.
- Undertaking a detailed Implementation Planning phase then focuses on the roll out, including further key decisions on structure, policies and restrictions, and franchise system management. The process needs to be sequential because many decisions in this area go on to impact coverage in the Operating Manuals and Systems, and the Franchise Agreement.
- Develop Franchise Manuals and related Operating Systems. In particular, Franchisee Manuals require preparation to convey how franchisees are to work within the franchise system, commence operations, plan and operate the business on an on-going basis and, ultimately, how to exit the franchise network. The Franchisee Manuals are the centre of a franchisor’s ability to successfully transfer their unit-level business model to a franchisee.
- Preparing Franchise Agreements. The Franchise Agreement is at the core of the Franchise System and franchise relationship and needs to be prepared by a lawyer that specialises in franchising. Importantly also, the Franchise Agreement should only be prepared once the prospective franchisor has undertaken a comprehensive franchising assessment, and further planning as per the aforementioned Implementation Plan.
- Develop franchising Recruitment Infrastructure to help prepare for finding and selecting franchisees through the creation of a recruitment plan, franchise recruitment marketing materials (including a Disclosure Document), systems for assessing franchisees, and an overall franchise recruitment management system.
- Building Franchisor Capability and the Franchise Support Office. Key here is ensuring the franchisor understands what constitutes great franchise system management and how to practice it. Aligned we would often suggest a Franchisor Manual is prepared, detailing key practices that, in turn, can be delegated. We also recommend that franchisor staff have a Learning Path to develop franchising knowledge and capability relevant to their positions.
Franchisors, franchisees, and advisors need to recognise the important role good franchise system development plays in the ability to create and sustain franchisor and franchisee business value. The type of assessment and developments outlined above are critical to ensure franchising is indeed appropriate for the business, and, to ensure critical franchising decisions, structure and infrastructure are in place to govern and support the franchise network.
- What steps should we take to ensure franchising is appropriate and, if so, to establish a strong franchise structure and management team?
About the Franchising Best Practice 500 Series
This is part of a series of franchising best practices. Franchize Consultants is sharing and publishing these best practices weekly for the betterment of franchising. We know that better knowledge and execution of franchising best practices leads to bigger and more valuable franchisor and franchisee businesses.
We have assembled the first 40 best practices into The Best Practice Handbook, which is available for purchase.