If you have a successful business and are now exploring suitable growth options, you’re probably wondering if franchising could be the way to go. You may, or may not be aware New Zealand is the most franchised country in the world per-capita, so Kiwis are very comfortable with becoming franchisees as a vehicle to achieve ‘supported’ self-employment.
Here are some areas to consider when assessing your businesses suitability for franchising.
Proven Business Model
Most business owners I talk to started with very few resources or knowledge on how to run a business. They made many mistakes, found every pitfall along the way and eventually came out the other side with experience, solutions, systems and operational efficiencies, which can now be presented to the franchisee as a business model that works. Most Franchisees will be expecting to replicate a model that is tried and tested, not still in the development stage although there are exceptions.
Replicable Business Model
As a rule, you should be able to teach a franchisee how to run the business within a reasonable period of time. The simpler the business model, the broader your potential franchisee market will be. Some franchises require special skills and/or qualifications, such as Electricians or Plumbers, and when this is the case, you would recruit franchisees based on this criterion, but not necessarily need to provide training in this area of the business. In this situation the field of potential franchisees may be reduced but can also make targeting these franchisees simpler. Keep in mind, that many franchisees are skilled businesspeople and may wish to employ staff who would already have any necessary technical skillset.
The way you promote your business and the image you project in the market will determine your success in attracting, recruiting and onboarding the right franchisees for your business. Your approach must be professional in all aspects of the process, from answering the telephone, your written communication for website and email enquiries, and the attention to detail of all information and promotional materials provided. Franchisees will be assessing the opportunity through the entire process including your approach to recruitment and the way you speak about your customers. A lack of professionalism in one or all of these areas could turn them off your franchise opportunity.
Strong branding is imperative. Your name and logo should be distinct, memorable and clearly communicate your brand message. If your trade name is specific to your local town, state or region, it will not be suitable for national rollout so you would need to consider a re-brand before franchising is undertaken. All corporate imagery should present a clear message of professionalism and quality through vehicle branding, external signage, uniforms, website design, promotional material, stationery, product ranges.
Track Record of Financial Performance
This is not always an essential as more and more start-ups are successfully choosing to establish their business in a franchise model from day one, however if you are considering franchising an established business, there will need to be evidence you are replicating a financial model that has already been achieved, so it is important that there is a sufficient trading period to give credence to any financial projections.
One of the biggest learning curves for new Franchisors is the shift in the relationship dynamic of going from employees to Franchisees who are self-employed business owners and must be treated for all intents and purposes as business partners. The franchisor maintains the ultimate control of the business but provides the operating guidelines for the Franchisees and must then allow them to run their own business within those boundaries. Micro-managing and adopting an autocratic management style within a franchise system is a destructive path. It is imperative to approach the relationship with a collaborative and respectful attitude if you want to nurture a strong culture of success. Communication skills are important along with the ability and desire to encourage and support others.
As with any investment, Franchisees will avoid a product or service that has a limited lifespan, is ‘on-trend’ or could become obsolete over time due to market disruptors. Astute prospective Franchisees will be looking for products and services that have longevity and are required through varied market and economic conditions.
Reasonable Operating Margins
Businesses that operate with tight margins and low turnover are not suited to franchising. In order for the Franchisor and Franchisee to both enjoy a reasonable return, the Franchise must have an operating margin sufficient to support continued growth and to build a rewarding business that provides a reasonable return on the Franchisees commitment and efforts, and to enable them to recover their investment over the life of the franchise agreement. The franchisor must be able to cover the cost of providing the ongoing support to the Franchisee as well as receive a reasonable royalty. In some Franchises, the Franchisor is the main supplier, when this is the case it is important that any mark up on goods or services enables a win-win situation for both parties.
If you would like to discuss your businesses suitability for franchising, or how we can help you prepare, message us with some suitable times to chat.