What makes franchising such a great idea from the standpoint of a franchisor? First of all, you get to grow your business without getting that much work to do. How much you will help them out with training and assistance is your own choice really.
Keep in mind that the value of a franchise depends on several issues, one of them is the renown of your business. The more franchises you have, the bigger the renown. In other words, the situation appears to be a bit paradoxical, seeing as how the more you sell, the more value you have. This creates an endless loop of growing value for your business, which is a notion that you can’t underestimate.
At the same time, franchising is not easy. For instance, are you legally liable for malpractice done in the name of your brand? How hard is it to find the right franchisee? What are the costs that you will face as a franchisor? Only after answering all of these questions, you will be able to tell exactly where you stand and figure out if this is a good idea or not.
Here’s a brief list of all the considerations that you need to make before franchising your business.
1. Screening franchisees
Whether or not your franchise will be successful depends on two things – the market and the franchisee. The first part of this issue is quite tricky to unfold for several reasons. First of all, even though you can make some requirements (1 franchise per 100,000 citizens, etc.) this is not really that reliable. The truth is that you’re not in the field, which means that you can only take someone’s word for it. In this case, we’re talking about the word of your franchisee.
This makes the importance of being able to tell if they’re a reliable partner even higher.
You can start with a background check. Some agencies and platforms are even specializing in background checks for franchisees. For instance, you’ll be able to see their credit history, their criminal record and more. It will give you an insight into that one piece of their biography that you can know for that they would try to hide.
Other than this, you need to have a conversation with your franchisor and try to allow your intuition to reveal that which regular data cannot. Try to figure out what they are like as a person. You see, for a great business partner (in a way franchisor and franchisee are definitely partners) you need to share a vision, it’s not enough just for your interests to align. Try checking out if the two of you can see eye to eye. Keep in mind, however, that you also need to make sure that they check all your other (mandatory) boxes. You can’t give them the franchise just because you like them.
2. Make your business marketable
One of the first tasks required for successful franchising is to try and make your franchise marketable enough. This will open up a whole new world of possibilities.
Previously we’ve talked about choosing the right franchisee for your business, which may make some potential franchisors ask – will I have the privilege to make a selection, to begin with? Well, this depends on your franchise’s appeal and marketability. Picking one franchisee from 20 offers is better than picking one of the two. Sure, the latter is easier but with a smaller franchisee pool, your hands are tied. You either refuse them both and don’t sell your franchise or you make a compromise that you don’t feel so good about.
First of all, in order to make your franchise marketable, you need to establish your presence within a certain industry. This is what some franchisors make a mistake of when focusing on regional recognition instead. You see, franchises are regional and you can’t sell two franchises in the same neighbourhood. This is why doing well locally doesn’t carry that much weight as being recognized within the industry.
Also, when buying a franchise, franchisees will try to compare you to others within the industry. This is how they’ll come to perceive and evaluate your own worth. Try to invest in digital marketing (especially SEO) and become competitive for some of the top keywords in your respective industry. Connect with some of the renowned specialists in your field and ask for their endorsement.
3. Protect your business
Another thing you need to do is protect your brand. The best way to do so is to be picky about who you’re going to sell your franchise to (something we’ve already covered). At the same time, it’s important that you keep in mind the importance of providing the necessary guidance and assistance to your franchisees. In order for their staff to live up to your standards, you need to train them properly. In order for their products to live up to your quality standards, you need to connect them with your suppliers.
Your first step in actually providing your business with the legal protection it needs would be to protect the IP. The trademark, copyright, pattern, etc., are there to ensure that you own what you’re selling to the franchisee in question.
One more thing you can do in order to protect your brand ensures that you have the right franchise agreement. Basically, you can put whatever you want here. Remember that while some courts may value verbal agreements, putting everything in writing, having a lawyer compose/look over it and ensuring that people read it all ensures your safety.
Also, try to keep around a good PR team. A franchise is a simple thing to explain, however, for a regular customer, the difference between a branch and a franchise is not always so obvious. This is why it’s important that you take the necessary steps to provide your brand with some additional protection in the eyes of your audience.
4. Hands-off approach
This part will seem quite hard but you need to let franchisees work independently from you. Remember, the IP is yours but the executive power needs to be theirs. Technically, you have the right to refuse to renew their contract but this is something that you really shouldn’t abuse. Once the word gets out that you’re too meddling, people will not be that interested in your franchise. In other words, this piece of advice can be interpreted as – protect your business from yourself, as well.
Remember that past the selection (vetting) process, you shouldn’t work too much around your franchises. Sure, there’s always something to do but if you wanted to run something directly, you should have started a branch.
The key thing is that you remember what the franchise really is – it is an independent business that pays you for the privilege of using your intellectual property. In some cases, this doesn’t even mean using your brand name. One of the biggest and best-renowned such examples is the one of Hungry Jack’s. This is the franchise of Burger King, that’s prohibited from working under that name in Australia, seeing as how trademarks are recognized nationwide and there’s already a business under that name on the continent.
To make the long story short, you sell the franchise and you let people run it as they see fit. This is why being picky is so important – it’s the last major decision that you should have when it comes to that particular franchise.
5. Additional tricks
Duplication of outlets is not necessarily a bad thing. At least this is the case when it comes to factoring. Just think about it, if you don’t insist on the same standards, people will make an estimate that you’re unsure. Also, they might assume that you haven’t yet proven your business model works, which makes you experiment in quest for a better business model. These are the rumours that you need to put out as soon as possible.
Remember that a success of a franchise can often be determined by comparing it to the success of another franchise. The same thing goes with the vigilance of a franchisee or their loyalty. The only way to make these comparisons adequate is to keep records of everything. Nowadays, this documentation can be kept in digital format, which makes it easily accessible and inexpensive for storage.
Lastly, you need to plan for longevity and profitability in the long run. Sure, you might feel like you absolutely need to sell in order to make a profit this year but is this really worth destroying the legacy of your business by rushing to sell to the first bidder? Keep in mind that business is rarely an exact science but one thing remains true – rushing and relying on intuition alone seldom make for wise business decisions. Therefore, you need to find more permanent solutions.
The last thing you need to keep in mind is the fact that choosing a capable franchisee solves all your troubles. This is something that you’ll only be able to see once you sell to one competent and one incompetent franchisee at the same time. Still, there’s not much room for fear.
A lot of times, when a franchise doesn’t work out, you won’t be damaged much. The franchisee will be the one dealing with the losses while you just get the money for the franchise. Sure, the value of the business might not grow but it doesn’t have to diminish either. Countless franchises from brands that were even as big and proven as McDonald’s failed, yet, this didn’t drive the brand name into the ground. While it is always better to play safe, taking a risk, every now and then, doesn’t have to be a bad call either.