Do Business Well

Advantages of franchising for franchisees

1. The franchisee will start a tried and tested business concept that has been fully “pilot” tested. Often franchisees do not have the general business management skills or specialised knowledge needed in the proposed business activity. The franchisor owns this knowledge and has the necessary business skills, which he passes on to the franchisee.

2. The franchisor should have developed a long-term strategic business plan including a country development plan, which the franchisee will be exposed to. The franchisor’s strategic vision should provide for the growth and adaptability required for the survival of the brand. A country development plan is the geographic expansion plan that outlines the geographic areas earmarked for expansion, as well as the rate of expansion. The rollout of the franchisee’s store is therefore part of a larger expansion strategy, so the brand that the franchisee has bought into should become more valuable with time. Continue Reading »

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Take great care before investing in a franchise. Under no circumstance should you be rushed into taking up a franchise. This is your life we’retalking about here.

Firstly, you must evaluate your own skills, aptitude and abilities.

Based on the pros and cons of being a franchisee outlined in the previous section, decide whether you will be a good franchisee. Taking up a franchise will impose substantial burdens on both you and your family. You will be required to invest large sums of your time and money (or even borrowed money) in the franchise.

Secondly, establish the areas of business activities that you are interested in. Obtain lists of available franchisees. Continue Reading »

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When assessing the viability of an existing business for franchising, several critical factors should be considered, for example:

• Does the business operate in a large and growing market? Market demand must be sufficient to sustain a franchised network, or even more than one franchise, since competition will inevitably enter the marketplace.
• A large market will also contribute to promising margins, making it an attractive business opportunity for prospective franchisees. Also, the market must provide room for growth, for the benefit of the franchisee and franchisor.
• Can growth be sustained? The market must have the potential to grow for a long period since the franchisee usually signs a long-term contract and the franchisor has to build a solid infrastructure to support the franchised network. For this reason, fads are not franchiseable.

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Franchising has many outstanding qualities and its merits are not under dispute. Unfortunately, this has persuaded some proponents of the concept to overshoot the mark somewhat by recommending franchising as a cure-all for all business ills. It is not! Whilst business failures in franchising are relatively rare, they do occur. When this happens, casual observers are quick to blame franchising. Should they bother to carry out a proper post mortem, however, they would soon realise that in most instances, it was not the concept of franchising that should shoulder the blame for the business failure but its faulty implementation. Continue Reading »

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• Aggressive brand building. Marketing efforts in the widest sense of the word must surely rank among the franchisor’s prime obligations. Market research and product development are of equal importance. All these activities, if performed diligently, will result in tangible benefits for franchisees and go a long way towards ensuring harmonious relations.
• Clear channels of communication. Franchisees hate it if they have a problem and cannot reach anyone who has the knowledge and / or the necessary authority to offer an immediate solution, as this can cost them business. They expect a system to be in place that is capable of taking care of all foreseeable problem-solving needs, promptly and efficiently. Moreover, franchisees like to be kept informed of new developments within the network before the public gets to hear about them. Few things can be more unsettling for a franchisee, especially if he is relatively new in the business and not all that sure of himself, than to be told by a prospective customer about new developments within his network of which he had no prior knowledge.

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What franchisees expect from their franchisor

More often than not, budding entrepreneurs choose the franchise route because they want to be in a business of their own without being alone. They are quite happy to pay the initial and upfront fees prescribed by the franchise agreement as long as they receive perceived value in return. And they willingly follow the guidelines contained in the operations manual as long as they are up to date, relevant and practical to implement. In return, they will expect the following from the franchisor:

Full disclosure. The franchisees will want to know the true potential of a site. Continue Reading »

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Franchising is all about working together towards a common goal. On the surface of it, this appears to be the building of the brand for mutual financial gain - what could be simpler than that? Further investigation reveals, however, that in reality, matters are a little more complex. Granted, both the franchisor and his franchisees want to build wealth for themselves and their families to enjoy. Beyond that, the franchisor and his franchisees have dreams that have the potential to take them in different directions.

Franchisors will want their brand to dominate the landscape of every city and town; their gut feel may tell them to do whatever it takes to realise this dream. Franchisees, on the other hand, are likely to be more concerned with the short-term profitability of the outlet they own. They tend to overlook the fact that it is better for them to belong to a strong network Continue Reading »

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Franchising offers many benefits to franchisors and franchisees alike. It should not come as a surprise, however, that whilst the concept has much to recommend it, it has some drawbacks as well. To assist you in forming a balanced view, we will touch on these aspects in sequence, both from the franchisor’s and the franchisee’s point of view.

Advantages

• Less capital needed for expansion. Franchisees are generally expected to provide the necessary capital for the setting-up of their units. It follows that business expansion via the franchising route will absorb less capital than the establishment of branches would require.

• Rapid market penetration becomes possible. In addition to raising the necessary finance, franchisees, being owner-operators, can be relied upon to take care of operational problems at unit level as they arise.

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Under either scenario, the repercussions for the former franchisee would be drastic and negative publicity almost inevitable. Should it become clear, therefore, that the failure of the business is not the franchisee’s fault at all, but is due to poor site selection advice given by the franchisor, some form of compensation should be considered,although from a purely legalistic point of view, no binding obligation is likely to arise.

• Territorial mistakes. This is a truly problematic situation faced by those franchisors who feel compelled to offer territorial protection to their franchisees.

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To franchise a business is not all plain sailing, however, it can have disadvantages as well. The moral responsibility every franchisor assumes for the welfare of his franchisees that is implied in the franchise relationship must surely top the list of negatives. An entrepreneur who decides tofranchise his business no longer just puts his own capital at risk, but that of his franchisees as well. Some individuals find this a heavy burden to bear, to the extent that it could limit their willingness to exploit additional opportunities, out of fear that this may expose franchisees to unacceptable risk. Other potential problems arising from franchising are:

•  The high cost of franchising. Franchising is a numbers game; the more franchisees there are in a network the greater is the likelihood that the franchise operation is profitable.

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