Are you a successful business owner looking to expand your business empire? Franchising your business is one way to go about it. But before you get the ball rolling, read Business Owl’s step-by-step guide to franchising your business…
What is a franchise?
Before you leap into franchising, make sure you understand exactly what it is, and what you’re in for. A franchise is a business concept that offers specific products or services and takes on a certain business identity. The business concept is usually repeated numerous times throughout an area by franchisees purchasing and running their own franchise in a specific area as determined by the developer of the concept (the franchisor).
Many people see franchising as an easy-money scheme. Nothing could be further from the truth. Not only is it a major business decision, but establishing franchises is a long-term commitment. Basically, you are building up replicas of your existing business from the ground up, and will have to invest just as much time, money and effort establishing your franchise system, as you did when establishing your first business.
Step One: Consider what makes a good franchise
Franchisees are attracted to franchisors for three major reasons:
- The brand – it takes years to achieve brand recognition in the marketplace. Franchisees are looking to align themselves with strong brands, piggybacking on brand loyalty and getting a head start in a tough business environment
- The franchisor’s experience – Franchisees prefer to associate with franchisors with significant business experience and an established track record
- The support – going it alone is difficult, which is why many entrepreneurs are attracted to franchises, rather than launching their own start-ups. The support and training offered by a franchisor is often the deal clincher.
Step Two: Do the franchise-ability test
Answer these questions:
- Is your business ready to franchise?
- How strong is your brand?
- How strong are your company processes and systems?
- Have you considered other methods of expanding your business?
- Do you have enough money to invest in the franchise process?
Step Three: Consider whether you would make a good franchisor
Franchising is a demanding industry. You may think that franchising your business will mean less work for you but, in reality, more franchises and franchisees equals more to manage. Not only will you have to be constantly available to mentor your franchisees, but when product, service, staff or business management issues need resolving, the buck stops with you. Are you up to taking on these additional commitments and responsibilities?
Step Four: Hire a franchise consultant
You may be a successful business owner, but how much do you actually know about franchises and franchising? Franchise consultants have intimate knowledge of the ins-and-outs of franchising, and are able to provide you with expert advice. Your franchise consultant will work with you to draft a franchise development plan. This is a detailed business blueprint for the establishment and roll out of your franchise operation, and includes financial forecasts, capital requirements, company policies and procedures, franchise and training manuals and an action plan or implementation strategy.
Step Five: Find a franchise lawyer
Warning – don’t attempt this at home! Franchise agreements must be drawn up by a specialised franchise attorney. A franchise agreement includes, amongst other things, descriptions of the business, and details of franchisee obligations, franchise fees and royalty fees. Your franchise attorney will also need to draw up a Franchise Disclosure Document – a legal document presented to prospective franchisees disclosing information about the franchise operation, such as details about the franchisor’s experience and qualifications, financial projections, franchisor and franchisee obligations, and the names and contact details of existing franchisees. Franchise Disclosure Documents are now required in terms of the new Consumer Protection Act No. 68 of 2008.
Step Six: Establish a pilot franchise
Monitoring results in your pilot franchise for at least a year, preferably two, will help you assess whether franchising really is a viable method of expansion.
Step Seven: Roll out the franchises!
Together with your franchise consultant and franchise attorney, finalise your franchise documents; fine-tune your processes and procedures and start implementing your franchise strategy. Don’t forget to join the official body for franchising in South Africa, the Franchise Association of South Africa. Work hard and enjoy the fruits of your investment!
