Buying, starting or franchising a business

How to successfully franchise your business

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

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In this article

Being a franchisor

When someone buys a franchise, they buy 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’s 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.

Weigh up the pros and cons

Franchising isn’t for everyone, but it does have some advantages. For example, it enables you to use other people’s capital to expand your business. You can focus on growing and strengthening your brand, while your franchisees concentrate on selling your products and services.

Franchising also opens up new revenue streams from franchise fees and royalty payments. And because franchisees are investors rather than employees, they’re likely to be more motivated to make the business successful.

There are disadvantages, too. It requires considerable time and effort to set up a successful franchise. You’ll need to document all business systems, processes, and quality standards in operations manuals, and provide training and ongoing support to your franchisees. Having to troubleshoot problems and visit franchisees on site can become costly.

If your franchises are widespread, it could prove hard to control the quality of your products or services. And if you choose the wrong franchisee, it could risk damaging your brand (and be difficult to disenfranchise them).

You can learn more about franchising your business on the Franchise Association of New Zealand (FANZ) website. They can help you find an expert adviser, and let you know about any upcoming trade shows in your region.

Assess your suitability

It’s important to consider whether your business is suitable for franchising. 

Some of the questions you should ask yourself:

  • 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? 
  • 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?  

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:

  • SWOT analysis: Strengths, Weaknesses, Opportunities, and Threats that your new business model will face
  • 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 expected growth into account
  • Fees, royalties, transition timelines, and revenue targets for franchisees
  • The requirements of franchisees, including business skills, personality traits, work ethic, and financial position
  • The monitoring process used to make sure franchisees are providing similar-quality products or services.

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.

Develop a training programme

Training is vital to get new franchisees up and running quickly.

You’ll need to establish a training programme and operations manual that gives franchisees a comprehensive guide to the initial set-up of their franchise, along with day-to-day management requirements.

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 and 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 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.

Strengthen your brand

A strong brand will make your business more attractive to potential franchisees. It’ll also make it stronger to withstand any headwinds or teething problems that come from expanding. 

Spend time building your brand by telling a strong story, ensuring your logo and brand design are on point. Our article on how to gain awareness for a new business has some tips that could help.

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.

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.

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 where franchisees can network, upskill, and share their insights and experiences with each other.

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