Franchise Success

Franchise success means different things to a franchisor than it does to a franchisee. However, it is safe to say that, in any given franchise system, franchisees must be thriving and successful in order for franchisors to experience long-term franchise success.

The explanation for this is simple: franchisors get ‘paid’ when their franchisees are able to afford the various fees associated with running their franchises. The franchise fee is a one-time fee associated with the signing of the franchise agreement. So, in the long-term, it is not as huge a consideration as the other recurring fees. Royalty fees, which recur for the length of the franchise relationship, provide a constant stream of income to the franchisor. In order for the franchisor to get paid, the franchisees have to be able to afford these fees. In order for the franchisees to afford these fees, their franchises have to be doing extremely well in terms of sales. In order for the franchisees to have good sales figures, the franchise system must be set up just right, and the franchisees must have the traits and practices that are conducive to franchise success. Clearly, then, many factors go into running a successful franchise company.

 

Aligning Yourself towards Franchise Success

 

As a franchisor, you cannot afford to simply charge your franchisees unjustifiably high fees. These may grant you high revenues in the short term, but they will sour your relationships with your franchisees in the long term. If they feel exploited, and if they are not getting as much from their franchises as they are putting into them, it is only a matter of time before they exit the franchise system. This is not good for you. Stability and continuity are the hallmarks of any successful business endeavor, including franchising efforts. So you want to be sure that you not only recruit from the best possible pool of franchisees, but that you also do your utmost to maintain strong, respectful, mutually beneficial relationships with them.

Maintaining good relationships with your franchisees begins even before you recruit them and have them sign the franchise agreement. It begins when you are first assessing your business to determine its suitability for the franchising model. The research you do on your business, the consequent decision to turn it into a franchise company, and the processes you undertake to transform it into one must all be done with the franchisor-franchisee relationship in mind. From the get-go, you must be aware of the features that will attract good franchisees to your franchise company and keep them there. At the same time, you must balance them with your own need to make a profit as a franchisor. After all, you are running a business, not a charity. Franchise success must be an achievable goal for you and for your franchisees.

Understanding the Franchise Relationship

A mutually beneficial franchise relationship in which the franchisor’s and franchisees’ roles are clearly defined is the basis for a functional franchise system. Franchisors who do not invest much effort into determining the parameters for this relationship and making it work will be filled with regrets later. The most important thing to remember about your franchise relationship is that it is a business relationship. It is not a friendship between equals. The reason why you and your franchisees have contracts detailing your respective responsibilities within the franchise system is to ensure that you all live up to those responsibilities. This makes for the effective operation of your franchise system.

 

The Hierarchies in the Franchise Relationship

 

Because the franchise system is built on your original business ideas, and because, in the process of franchising your business, your role shifts into an executive one, it is important for your relationship with your franchisees to reflect this hierarchy. It is your role to set the direction for the franchise company’s development. By the time your franchisees sign on for their positions, the terms are set in stone for the most part. They may suggest minor adjustments, but you are not under any obligation to keep on negotiating the details of the contract until they feel pleased with them. Most of the accommodation has to come from their side. If they sign the franchise agreement, they have to be willing to live with the terms of that agreement. This underlines the importance of the franchisor and franchisee hashing out the details of the documents governing the franchise relationship before they sign them. That’s the only way to determine that they are, in fact, a good fit for each other.

A good franchisor will clearly lay out his or her expectations and give the franchisees detailed guidelines to follow as they operate their franchises. At the same time, the franchisor or his or her representative should be accessible to the franchisees. They should be able to express their concerns if they have any. Furthermore, if their concerns turn out to be legitimate, it is important to address them. Ignoring one’s franchisees’ reasonable requests is out of the question. The franchisees could have ideas that improve the efficiency of the system, and any improvements to the system benefit everybody, including the franchisor, at the end of the day. Additionally, it is important for all the parties in a franchise relationship to feel that their contributions matter and that their opinions are valued.

Franchise Fee

Strictly speaking, a franchise fee is the money that a franchisee pays to a franchisor in order to join a franchise system and to gain the rights to operate a franchise at the beginning of their franchise relationship. It tends to be paid at the signing of the franchise agreement. Because it is a flat fee and allows entrance into the franchise system, it is typically a large amount. The fee may grant franchisees an operating manual, franchise advice from the franchisor, and initial training. However, the specifics vary from franchise system to franchise system. To determine what you should grant your franchisees in exchange for the franchise fee, you need to pay attention to standard franchising practice in your industry. Additionally, you should look at the specifics of your business to see what would work best for you.

 

The Franchise Fee, Other Fees and Their Importance to the Franchisor

 

When some people speak of a franchise fee, they usually mean it as a generic term. Rather than a one-time fee, they have in mind all the fees that franchisees pay to their franchisors through the course of their franchising relationships. These fees include the initial fee paid at the signing of the franchise agreement, as described above. They also include the royalty fees, which are paid on a regular basis (perhaps monthly, quarterly or annually) for as long as there is a franchise relationship. This royalty fee can be thought of as paying for exactly what is implied: the use of the copyrighted concepts or materials associated with the franchise company in the process of conducting the franchise. It is directly proportional to the amount made by the franchisee in sales. This is because royalty fees are calculated as a percentage of the sales. The more money the franchisee makes, the higher the royalty fees he or she pays to the franchisor.

As a franchisor, fees of this form will constitute your income from the franchise system. Hence it is important for you to set your franchise fee and other fees at a level that is commensurate with the opportunities and rights you are granting your franchisees. If you set your franchise fee too low, you may end up regretting this decision. At the beginning of the franchising process, the number of franchisees you will get is still not definite. Furthermore, you do not know for a fact what profits your franchisees will be bringing in. Setting your fee too low to attract potential franchisees could add up to the loss of hundreds of thousands of dollars in potential revenue if you succeed tremendously.

Should Your Business Be a Franchise Business?

How do you go about determining whether your business has a future as a franchise business? This is the ultimate question that you have to consider as a potential franchisor. You may have a successful business and may see franchising as a sure route to success, but it is possible for franchising to be the wrong route for your business. Like other major business decisions, this is something that you will have to do research on and to think about long and hard.

 

Determining Your Business’s Suitability to be a Franchise Business

 

One of the first issues you need to consider is the type of business you would like yours to grow into. If you want to expand your business by a few regional branches or offices, then franchising is not likely to be the way for you. Franchising involves so much legal red tape and expense that you do not want to venture in that direction for a relatively small expansion. If, on the other hand, your long-term plan is to expand nationwide and to do so dramatically, then you are probably right to consider turning it into a franchise business. Franchising is ideal for large-scale, accelerated growths of this kind because they are more financially manageable this way. Rather than having to shoulder all the associated financial burdens, you can rely on your franchisees to share the load. Furthermore, because they are investing their own capital into the process, your franchisees are bound to be more invested in making things work than would an employee you hired to run a branch of your business.

Something else you have to think about is whether your business will work well as a franchise business. Not every business can work under this model. Some businesses work best as mom-and-pop stores. They owe much of their success to the unique styles and personalities of their operators and to other contextual factors. If someone tries to replicate these businesses at other locations, he or she will quickly realize that they do not translate successfully in the new contexts. A business of this kind does not make a good franchise business. For businesses to be franchised successfully, the formulae on which they are based have to be replicable in other contexts with equal or greater success.

In addition to being replicable, your business should sell a distinct, innovative idea that makes it stand out in the market in order to survive post-franchising. It is not enough to simply copy another franchise business’s ideas and hope for success. You will be competing with that business, and the only way to do so effectively is to offer customers something that your competitor doesn’t.

Franchise Advice

Because starting a franchise can be like entering into uncharted waters, it is an endeavor that one shouldn’t go into without preparation. The potential franchisor should seek franchise advice before committing his or her time, effort and money to the endeavor. Afterwards, if he or she decides to go ahead with the process and become a bona fide franchisor, it will be important to continue seeking franchise advice. In business, as in all other important endeavors, it is better to be excessively cautious than it is to walk into complex financial situations unprepared.

Franchise advice can take numerous forms. It could be informal advice gathered from talking to franchisors of businesses similar to your own. It could also be gathered from conversations with franchisees. Talking to both franchisors and franchisees about their franchising experiences can help give you a three-dimensional picture of the franchising process and of its pros and cons. The conversations can help you to anticipate the types of problems and misunderstandings that could easily bog you down once you become a franchisor. They can also give you insight into what is realistic, given the current state of the market. It is always better to know what a particular endeavor entails on the ‘grassroots level’ than it is to imagine what it is about in abstract terms. This kind of information can help a potential franchisor figure out how to sweeten the deal so that quality franchisees feel motivated to buy franchise rights from him or her.

 

Getting Franchise Advice from Experts

 

Franchise advice can also come from professionals who specialize in franchising. They may be lawyers, accountants, franchising consultants or others. Because they have prior experience facilitating franchising, they make good sources of knowledge about the process. Of course this knowledge comes at a price, so before signing on a specialist to advice him or her, a franchisor should do some research to determine how good the specialist is. It is important to request list of references and to ask questions about the specialist’s history working with franchisors.

Franchising specialists will likely give a franchisor a checklist of steps to follow in determining whether his or her business is suitable for franchising. Subsequently, they will give the franchisor advice on getting the franchising process started. The franchisor will comply with these different stages of advice by assessing his or her business for reliability, financial security, flexibility, return on investment, and other factors. Additionally, the franchisor will look into the heaps of paperwork involved in the process of franchising and the structural changes that lie ahead.

Master Franchising

There are two primary ways in which franchisors can guide and support their franchisees: direct franchising and master franchising. The first mode of franchising involves direct communication between the franchisor and franchisees. The second one involves indirect communication between the franchisor and franchisees through an intermediate figure, the master franchisee.

The master franchisee essentially takes on part of the role of the franchisor. He or she can only play this role in a specified territory. The role entails recruiting the franchisees and giving them the guidance, training and assistance they need. The master franchisee also receives the franchisees’ initial fees and royalty fees. He or she might have to pass some of these earnings to the franchisor if that is what their agreement indicates. In addition, the master franchisee has to pay a large fee to the franchisor at the beginning of their agreement.

 

The Characteristics of Master Franchising

 

Master franchising is advantageous for a number of reasons. These reasons could ultimately convince some to sign up for the position of the master franchisee. For one, the master franchisee does not need too much cash to begin with. Secondly, he or she can work as an independent business agent. This makes it is an attractive proposition for the up-and-coming entrepreneur. Master franchising sets the master franchisee right in the geographical vicinity of the franchisees. Hence, the master franchisee can communicate more efficiently with the franchisees and assist them more readily than the franchisor, who is located in another part of the country or in an entirely different country, can.

Unfortunately, master franchising is also characterized by disadvantages. These include the fact that the master franchisee cannot expand beyond the predetermined territory. Additionally, the contract that the master franchisee signs with the franchisor is typically a long-term one. Hence, if it turns out to have been negotiated to the disadvantage of the master franchisee, it can be a long time before he or she has the opportunity to renegotiate its terms or end it to pursue another endeavor. Master franchising is also beset by legal problems, likely due to the added layer of complications and inefficiencies that can only be expected with the introduction of an intermediate figure into the franchising process.

The franchisor that is keen on the rapid growth of the franchise but does not want to risk much of his or her own initial capital will typically opt to contract a master franchisee. If the franchisor contracts a master franchisee with the right skills and is able to match these with excellent resources, success is sure to follow.

Franchising Documents

Franchising can be an overwhelming process due to its associated expenses, labor and reams of paperwork. Putting together franchising documents can be confusing and time-consuming, but there are ways of minimizing these problems and making the process streamlined and efficient. All of these approaches to simplifying the documentation of franchising have one thing in common: they involve seeking the guidance of more experienced people.

Franchising experience can be shared with prospective franchisors in a number of ways. One of these ways is through franchise consultation agencies or individual franchise consultants. The consultants in these two contexts are well-versed in the intricacies of franchising because of their special training and their experience helping other clients with their franchising needs. Some of them actually learnt franchising the hard way: by trying to franchise their own businesses and learning what worked and what didn’t along the way.

Ultimately, figuring out which of these consultants is the best for your needs will come down to his or her track record and your budget. If you choose to go with a consultant, make sure to get recommendations beforehand. The amount of money paid to consultants for help putting together franchising documents can be so high that you must be sure you are getting your money’s worth from the get go.

 

Using Templates for Franchising Documents

 

Another source of guidance on franchising documents is the franchise package, including all the document templates and instructions you will need to put together the franchising documents on your own. These templates and instructions will have been put together by professionals who are intimate with the franchising process and have themselves helped other clients to franchise their businesses. Hence their guidance will be a great comfort to you. Of course the process will not be an interactive one: you will not be able to talk to the people who compiled the document templates and ask them questions that are unique to your circumstances. You will have to resolve any issues you encounter along the way by referencing various resources.

This can be a challenging way to put together franchising documents. However, if you are diligent, thorough and know what your best resources are, it is manageable. One advantage of doing things this way is that learning from experience empowers you to make more informed decisions about your franchise company. Another advantage is that it will save you lots of money if you succeed in doing it the right way. If you decide to follow this path, make sure to consult professionals for legal matters and matters relating to accounting. These are not areas where you should wing it, no matter how great you are at independent research.

Franchising a Small Business

Franchising a small business is one way for an ambitious business person to trigger the growth of his or her business. It requires a smaller amount of upfront capital than would expansion under a sole proprietor. Thus, it is easier to achieve.

This is not to say that franchising is an easy process. Taken on its own terms, it is in fact a complicated process involving huge sums of money, much research, detailed planning and paper work, and attention to the details of franchise law. Anybody who is serious about franchising a small business will ultimately have to seek the assistance of a franchise lawyer and a franchise consultant if he or she is to make meaningful headway in franchising.

These two professionals help to streamline the process involved in franchising a small business. They ensure that the business owner meets all the requirements of the process and does not waste any time or resources carrying out unnecessary steps. The franchise lawyer and consultant make particularly valuable additions to a franchising team because, having previously guided others through franchising, they are sure to have reliable “road-maps” of the process in their minds.

 

Franchising a Small Business: The Roles of Franchisors and Franchisees

 

Some business people view their small businesses as family legacies that must be transmitted to the younger generations with all the traditions intact. They are likely to respond negatively to any suggestions that they innovate some aspects of their business practices to make their small businesses more conducive to franchising. They may consider unacceptable the expectation that they cede some control over the “final products” that have come to be associated with their respective trademarks.

This is hardly surprising. When people put as much of themselves into their businesses as small business owners typically do, it is hard to separate their business achievements from their personal lives and, sometimes, from their families. Some people are able to make a smooth transition from being small business owners to being franchisors.  Others are not. This latter group of people makes poor candidates for franchising. It would be better for them to pull back from their efforts to franchise. After all, franchising a business is not for everybody. Other business ideas are likely to work better for them.

Prospective franchisors are not the only ones whose suitability for franchising should be examined closely. Prospective franchisees should be subjected to similar scrutiny. After all, they also play an important role in determining the outcome of the franchising process. Their capacity to meet the requirements of the franchisee role could ultimately decide whether their franchise units succeed or fail.

Franchising a Business

Franchising a business is a long, drawn out process, and it can cost a good deal of money. A business owner who wants to succeed at franchising has to be able to think strategically. In the earliest stages of franchising a business, many decisions have to be made based on what is likely to happen in the future. If the business owner does a good job of anticipating what lies ahead, he or she will be amply prepared for future challenges and the franchise will have a high chance of succeeding.

In order to anticipate what lies ahead, business owners have to engage in research to help them determine whether there is regional or nationwide demand for the goods and services that they plan on offering through their proposed franchises. Those who fail to engage in this important step and then go on to franchise their businesses could end up failing to sell any franchise units. This would obviously be a disaster for them as they would already have invested good money and time into making the transition.

Business owners also need to anticipate the roles that they will play in the future, once they have succeeded in franchising their businesses. There is a significant distinction between playing a hands-on role in the operation of a family-owned business and being the CEO of a national franchise. The latter job involves a lot of outreach work. The franchisor has to market the business idea to prospective franchisees and to guide and teach the new franchisees. If business owners do not have the foresight to understand that their new roles will make different demands on them, then they may be in for a rude awakening when the transition finally happens.

 

The Logistics of Franchising a Business

 

Business owners who are wise enough to recognize that new roles as franchisors might not suit them should take their apprehension as a sign that franchising might not work for them. Franchising a business is not an everyday business decision. It has huge implications for the shape that a business will take and the role that those involved in it will play. Hence business owners should give any concerns or worries due consideration.

A very important step for business owners who are laying the groundwork for franchising a business to take is to look into the legal requirements for franchising. Any national and regional laws to do with registering and operating a franchise must be followed to the letter. Failure to do so could lead to harsh legal penalties and financial consequences for the franchise down the road.

Franchise Regulations

The regulations that govern franchising at the national and regional levels are referred to as franchise regulations. These regulations vary from nation to nation.

Some nations, such as the United States, have well-developed franchise regulations. In others like India, government regulation of franchising is still in its early days. In various nations, there is a self-regulatory aspect to franchising, with franchisors taking the initiative to formulate and follow specific standards. In these contexts, the franchisors are not necessarily subject to any penalties should they fail to comply with these standards.

If you are looking to become a franchisor, you should find out which regulations govern franchising in your location. Remember that, if there are franchise regulations, they are likely to exist at both the national and regional levels. Violating these regulations will earn you penalties, a terrible risk to take when your credibility is essential to successfully marketing your franchise to prospective franchisees. Hence you must make the effort to find out what the regulations pertaining to your business are and to comply with them. You could do this the hard way: this entails doing all the research and completing all the forms. You could also do it the easy way: by hiring a franchise lawyer.

 

Why Do Franchise Regulations Exist?

 

Franchise regulations primarily exist to protect franchisees. If franchisors were allowed free rein, it is likely that some individuals would take advantage of the opportunity to commit fraud. They might franchise a business that they were aware had no capacity to succeed, and sell unsuspecting men and women the franchise. It would probably be too late for these men and women to seek redress by the time they realized that they were on a sinking ship.

Having regulations in place minimizes the likelihood of such an outcome. With regulations to contend with, franchisors have to disclose all the relevant information pertaining to their businesses before they enlist a single franchisee. This is typically information about the franchisors’ and businesses’ financial histories. Such information would make it possible to determine the legitimacy of the franchisors and their businesses.

Examples of this kind of information include previous earnings and projected earnings, along with documentation supporting those details. Information about trademarks associated with the business should be made available, as should any aliases by which the franchisor has gone. The franchisor’s prior entanglements in fraud, if any, should be indicated.

Note that franchise law sometimes overlaps with other areas of law, including commercial law and intellectual property law. This can make things complicated for the franchisor. As a prospective franchisor, you should make a point of consulting a franchise lawyer to deal with all such legal matters.

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