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10 steps to successfully franchise your business

Franchising can be a great way to grow your business rapidly, as well as an effective strategy for exiting your business in the future. Here are 10 steps for franchising success.

What is franchising?

When someone buys a franchise, they are buying the right to use a prescribed ‘business format’ with an established brand, products and business processes, for a set period. The business format is owned by the franchisor, who has developed it over time. The franchisor sells the rights to use their business format to franchisees, who pay an initial fee and ongoing royalties. 

Here’s what you need to consider when you’re thinking of franchising your business.

1. Is franchising right for your business?

Franchising is not for everyone, or every business. You need to understand both the pros and cons to identify if it is right for your business.

Some advantages of franchising your business include:

  • Using other people’s capital to expand your business.
  • New revenue streams from franchise fees and royalty payments.
  • You can focus on growing and strengthening your brand, while your franchisees concentrate on selling your products or services.
  • Empowered and motivated franchisees – as investors rather than employees, franchisees are more motivated to make their business (and yours) successful.

Some of the disadvantages of franchising are:

  • It requires considerable time and effort to set up a successful franchise. In particular you’ll need to:
    - Document all business systems, processes and quality standards in operations manuals.
    - Provide training and ongoing support to your franchisees.
  • Hidden expenses – having to troubleshoot problems and visit franchisees can become costly.
  • Risk – there’s a risk to your brand if you choose the wrong franchisee – and it may be difficult to disenfranchise them.
  • Quality control – if your franchises are widespread, it could prove hard to control the quality of your products or services.

2. Is your business suitable for franchising?

Some of the questions you need to consider include:

  • Do you have a proven track record? You’ll need to be able to demonstrate to franchisees that they can generate a fair profit for the time and money they’ll need to put into it.
  • Can you ‘clone’ your business? You need to have simple and above all transferable systems and processes and a business model that someone else can pick up and run with. If your business depends too much on you, it may be difficult for others to replicate.
  • Do you have the time and money to develop it into a franchise? Documenting your processes, creating operations manuals, developing training materials, and putting support systems in place all has a cost.
  • Is your business limited by geographical, cultural or other barriers?
  • Do you have a strong and recognisable brand that will attract franchisees?

Do you have established and reliable supply chains? Ideally, your business concept won’t be limited by barriers – neither geographical nor cultural. Products or services with brand recognition will go a long way to attracting franchisees. Having established and reliable supply chains are also essential.

3. Develop a franchise plan

Every business works better with a plan. Map out a franchise business plan explaining why your business is appropriate for franchising and how your franchise system is going to work. Your franchise plan should contain:

  • Strengths, Weaknesses, Opportunities, Threats (SWOT) that will face your new business model.
  • The management structure of your franchise – plus training and support systems.
  • Financial forecasts, marketing strategies, budgets and intended growth over the coming years.
  • Your future supply chain, taking into account expected growth.
  • Fees, royalties, transition timelines, and revenue targets for franchisees.
  • The requirements of franchisees – business skills, personality traits, work ethic, and financial position.
  • The monitoring process used to make sure franchisees are providing similar quality products or services.

See our article on how to write a simple business plan.

4. Standardise your processes

The key to success is creating a business model that will be easy for your franchisees to follow. Start by standardising your business processes and documenting them clearly in an easy to understand business manual.

You should also ‘Field test' your procedures during the initiation of your first franchisee, to make sure they work and tweak them where necessary.

5. Develop a training program

Training is vital to get new franchisees up and running quickly. You’ll need to establish a training program and operations manual which gives franchisees a comprehensive guide to the initial set-up of their franchise, along with day-to-day management requirements.

6. Draw up a franchise agreement

The franchise agreement is a key document, as it sets out the agreement between you and your franchisees. It must cover everything necessary to protect you and your franchisees’ interests. Write up a list of items you want to cover such as ownership, fees and royalties, standards of operation, costs, disputes procedures, coverage/territory, security, responsibilities, training and support and the conditions that may require you to terminate a franchise agreement.

It’s wise to engage a lawyer who specialises in franchising when you begin to draw up your franchise agreement. They can help you avoid any future issues or conflict by ensuring the terms and conditions of the agreement are clear.

7. Strengthen your brand

When someone buys a franchise, they are buying the right to use a prescribed ‘business format’ with an established brand, products and business processes, for a set period. The business format is owned by the franchisor, who has developed it over time. The franchisor sells the rights to use their business format to franchisees, who pay an initial fee and ongoing royalties. 

Here’s what you need to consider when you’re thinking of franchising your business.

8. Attract the right franchisees

Getting the right people to represent you is important in any business – and it’s even more important for franchises. Write a list of the skills, experience and qualities ideal franchisees should have. Be choosy – the wrong franchisee can cause irreparable damage to your brand and your business.

9. Establish support systems

Your relationship with your franchisees doesn’t stop when you sign the franchise agreement. It’s in your best interests to help them succeed, so make sure you have support systems in place to deal with any issues that franchisees and their employees may have. You’ll also need systems to ensure quality and brand standards are upheld, and contractual obligations are met. Decide whether to rely on in-house staff or set up an external group to provide this support.

10. Oversee your franchisees

With your support systems in place, regularly review your franchisees’ performance and targets. By being easily accessible via email or phone, and visiting your franchisees frequently, you’ll help build up a rapport that shows you want to maintain high standards.

You could also organise regular franchisee meetings, for franchisees to network, upskill and share their insights and experiences with each other.

For more information

 

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This material is provided as a complimentary service of ANZ Bank New Zealand Limited ("bank"). It is prepared based on information and sources the bank believes to be reliable. It is subject to change and is not a substitute for commercial judgement or professional advice, which should be sought prior to acting in reliance on it. To the extent permitted by law the bank disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to the material.

This material is for information purposes only. Its content is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised financial adviser service under the Financial Advisers Act 2008. It is recommended you seek advice from a financial adviser which takes into account your individual circumstances before you acquire a financial product. If you wish to consult an ANZ Business Specialist, please contact us on 0800 269 249.