Your business may be ready to become a franchise, but are you ready to become a franchisor?
Franchising is a brilliant method to raise capital and grow your business concept quickly and effectively through dedicated, passionate and motivated business owners – but is it for you? “When implemented correctly, a good franchise results in a win-win situation as it also reduces the investor’s risks,” says Derek Smith joint managing director of Hot Dog Café and former chairman of Franchising Association of South Africa (FASA).
“However, if it was easy, every franchise would be a stunning success and sadly that is not always the case.”
Related: Franchising benefits and risks: What to look for
“Make sure you consult with your accountant and your attorney so you can gather all of the information you need to make an educated decision on franchising your concept,” advises Amanda Abella of Kabbage. “The last thing you want is to begin the process of franchising only to realise you weren’t ready for it.”
You may think you tick all the boxes, but what about the personal implications of franchising your successful business?
1. If my business is that good, then why share it with others?
While franchising your business will give you a capital injection and increase your footprint, you need dedicated franchisees to carry your concept out successfully. “What is actually happening in this scenario is that the originator of the business has taken some of his short-term profitability and exchanged it for faster growth to gain a better long-term reward,” says Smith. “Sometimes this is essential for the success of the operation.”
Both you and your franchisees will profit from:
- Bulk purchasing, resulting in lower input costs
- Specialised service departments – such as product development and project management – which become affordable as a group
- Mass marketing which is unaffordable to small independent business, leading to improved sales and brand awareness
- Improved in capital value as your brand attains household recognition.
If you are able to let go of the need to run your business your way and trust others with your concept, your business will grow rapidly and both you and your franchisees will benefit.
2. Am I ready to be in a position of social responsibility?
Most potential franchisees are new to business are therefore very vulnerable due to inexperience. Not only are they going into a partnership with you to help you grow, and become business owners, they are also trusting you with their life savings.
“Ensure that you are ready to accept your fair share of responsibility for their success or failure,” advises Smith. “It is a certainty that if you don’t fulfil your responsibilities correctly your franchisees will let you know in no uncertain terms.”
It’s important to bear in mind that when things don’t go the franchisee’s way they may blame you for their failures, despite your best efforts to help them succeed. These are just some of the responsibilities that you may be faced with as a franchisor.
Related: Why quasi-franchising may be your best growth strategy
3. Do I understand the financial and time implications?
While building your current business, you only had to think about and account for one location which you oversaw. As a franchisor, you must invest in the necessary infrastructure before telling people about your new venture.
“Where does this money go, you may ask? This investment is made in people’s time for the development of the necessary structure and documentation,” explains Smith.
Consider the length of time required to develop the following:
- An accurate operations manual detailing all aspects of your operation.
- Training manuals.
- Training courses.
- A franchise agreement.
- Disclosure document.
- Setting up standards of operation.
- Evaluation procedures.
- Actually hiring and training franchise consultants.
Following the completion of the above, the real work begins. A pilot project must be put in place to ensure everything works in practice, and not just on paper. This will need a lot of your most precious resources – time and money. It might be tough to accept, but running a franchise chain while still managing your original store isn’t viable as it isn’t something you can do in your spare time.
“Franchising is a business separate to your original concept and should be treated accordingly,” says Smith.
Having the tools to franchise your business isn’t just about a winning business concept itself and doesn’t only depend on it being franchisable. If you’re not socially, financially and emotionally equipped, being a franchisor may not be for you.