Making steps towards Franchising

So you have a good business and maybe even a great business. Maybe, at this stage, it is only a business concept that you have spent countless hours on, but you are sure it will be a success. Why not franchise the idea? People will pay an initial franchise fee to set up and then continue paying you every month.

What a sensational idea! It’s just a matter of time before you can pick out the colour of your new Porsche.

If you think this sounds far fetched and very naïve then you are right, but it is amazing the number of people who think the franchising option is as simple as that.

What is a franchise anyway? We have all seen them and dealt with them, the brands we know such as McDonalds, KFC and Subway as well as some Australian homegrown brands such as Baker’s Delight, Michel’s Patisserie and Muffin Break.

Apart from these food retailers, franchising touches our lives in many and varied areas with larger retailers such as Harvey Norman and The Good Guys and also business-to-business franchises such as Kwik Kopy, Pack & Send and Signwave.

A major growth area has been in services such as IT, accounting, mortgage brokers and other financial services. What these businesses have in common is a business system that can be replicated.

Computers and computer servicing is an area that can adapt well to franchising because of the rapid growth in the take-up of the product and the continuing need for upgrading with quick and efficient personal service, whether the computer is at home or in an office.

If you are thinking of franchising your business, there are some important steps and decisions to make before embarking on this journey.
One of the major flaws that businesses make in considering this move is the assumption that this will create a better cash flow and better coverage for them because they won’t be using their own capital. In fact, the opposite is the usual scenario as there is an initial expense of between $30,000 and upwards of $75,000 to set up the franchise model.

What makes the business different from the other computer-based franchises? Would you join you? If you can’t answer that question with confidence and in detail, this is something that needs to be decided, written down and embraced.

You should also be aware that franchising can be a very litigious area and the best way to avoid any legal action from disgruntled franchisees is to have selection criteria in place from the beginning.

Understanding the relationship
The franchise relationship goes through many stages and needs to be understood. You are talking about making an agreement to work in unison with another business. As the individual franchise businesses grow, the needs of the franchisee changes and the support given must reflect this and the main area of focus should be profitability and not
just turnover.

Most people who start their own franchise business have little or no experience running a business and need support. A strong and competent franchisor understands franchisees are their customers and the type and quality of support given recognises this. You need to have systems in place to coach, not tell.

A part of this support should be business coaching. Coaching is often the process of asking the right questions, rather than giving an opinion. It is more about facilitating learning rather than telling.
Any advisor will suggest a series of questions of a client intending to purchase a franchise, so if you are thinking of franchising your business, be prepared to answer questions.

This should not discourage any business thinking of the franchising path, it can be very rewarding by providing a long-term sustainable parent business as well as personally and financially rewarding for all stakeholders, but it is a long-term commitment that requires a thought-out and planned approach. q

By Trevor Frost, franchise broker

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