Do Business Well

By becoming a franchisor, you enter a new business environment. It is f longer hamburgers or exhaust parts you are selling, but a business system that will put others into business and help them to become successful their own right. And the mere fact that your core business runs like clockwork does not mean that you are ready to start selling franchises. significant amount of preparatory work will have to be done before you a ready to introduce the world to your franchise offer.

Revisit franchiseability

Should you wish to reassure yourself that your business is inde franchiseable, it may be a good idea, where franchiseability is discussed, with specific reference to Figure 5. At this point, the condensed description of franchising that forms part of t Consumer Code for Franchising may shed additional light on the matt We have reproduced it as the following.

Extracts from the Consumer
Code for Franchising

Franchising is a business arrangement whereby the franchisor grants to the franchisee the right to sell the franchisor’s products or services within predetermined specifications and according to the guidelines set down by the franchisor.

• The franchisee uses the franchisor’s name, goodwill, products and services, marketing procedures, expertise, systems and support facilities. In exchange, the franchisee pays the franchisor an initial fee and ongoing management services fees as stipulated in the franchise agreement.
• A prerequisite for successful franchising is that the franchisor must have in place the following: an existing good name, goodwill, a successful product or service, marketing procedures, expertise, systems and support facilities. Should a “franchise” on offer lack these prerequisites it is not a true franchise. Having proved that the concept works and can be reproduced in more than one location, the franchisor offers franchises for sale.
• Once the franchisee has set up his business, he then pays a regular percentage of his turnover to the franchisor. This fee pays for ongoing support services provided by the franchisor and allows for a profit for the franchisor. This inter-dependency between the franchisee’s turnover and the support provided by the franchisor is what makes franchising such an attractive proposition - each party wants the other to succeed. The franchisee is at the sharp end of the market and is concerned with maximising sales through consumer satisfaction and with minimising costs. The franchisor concentrates on maintaining the competitive edge of the product or service and providing the support services necessary to help the franchisee concentrate his sales efforts effectively.

The franchise plan

When drafting the franchise plan, the first thing you will need to work out is how many units of your business you will be able to establish over a three to five year period. The necessary support infrastructure to manage this expansion must be taken into account and its cost assessed. This will provide you with the basic information needed to prepare financial projections and to reassure yourself that the project is viable if looked upon from several angles.

• From your prospective franchisees‘ point of view, the proposition must be attractive enough to justify the investment.
• From your own viewpoint, you will have to reassure yourself that once the income stream from initial fees dries up, which is inevitable, you will still be able make a profit from franchise operations without putting too great a financial burden on your franchisees.
• You have adequate funding in place to survive the initial period, when’ your expenses are likely to exceed your income from franchising by a considerable margin. See Figure 16 on the following page.

Establish a bank connection

Whilst on the subject of finance,you must establish close links with a commercial bank as early as possible, for the following reasons.

At the early stages of your foray into franchising, your banker will be
able to act as a sounding board and offer you invaluable advice.

Although you may not need funding for your franchise venture just yet, this is in fact the best time to arrange it. Should you wait until your cash reserves are dangerously low before you approach a bank, you may find it extremely hard going.

Not surprisingly, bankers prefer to have adequate time to consider the merits of your request. They also take comfort from the fact that you plan ahead and know when extra funding is required, and to what extent. If you turn up in a state of panic and pressurise them unduly, they may well take the easy way out and turn you down.

If your banker is familiar with your franchise project from the outset, he will be in an excellent position to put together a finance package for your future franchisees.

Ideally, you will be empowered to offer this package to your future franchisees and although the bank will retain the right of refusal, depending on your prospective franchisee’s credit worthiness, the mere availability of a finance package will enhance your standing as well as the attractiveness of your franchise offer, especially if this is linked to preferential terms.

Create the Operations Manual

The operations and procedures manual is the amalgam of your business experience in written form. It should be comprehensive and user-friendly, in other words, it must contain clear and concise guidelines for the execution of every single operational step your franchisees will be expected to implement. Remember, while you know the business backwards, it will be unfamiliar to your future franchisees and detail instructions will be invaluable.

Get your Franchise Agreement drawn up

In addition to business specifics and various boilerplate clauses that are part of every formal legal agreement, the franchise agreement will put the guidelines contained in the operations manual into a legal context. This is; the reason why you should prepare the operations manual before you instruct an attorney to draw up the franchise agreement.

Possibly related posts: (automatically generated)
Preparations for franchising

• Some Franchise Terminology
• Is a franchise the optimal solution? From the prospective franchisor's viewpoint
• Relationship Franchise Agreement - Operations Manual
• Selling the Franchise
• Mutual Expectations (franchisees) part 1
• Franchising Advantages
• Investing in a franchise: Take it slow
• What does a Franchise Agreement cover?
• Franchisee Selection Tips
• Is a franchise the optimal solution? From the prospective franchisee's viewpoint

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