Home Articles Seven things you need to know before you consider franchising

Seven things you need to know before you consider franchising

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Got a great business, with fantastic revenue and looking to expand?

Many businesses with ambitious growth plans franchise their business to create a distribution network and build their brand quickly. If you want to be as good at franchising as running your current business, there are a few things you need to plan for to be competitive with the best in the game. Ian Krawitz, shares his top seven tips for franchise success.

1. Create an infrastructure to support franchisees
When many businesses set up a franchise system they believe they can wait until they have 20 or 30 franchise units before they support their franchisees in a sophisticated manner.

From the start, plan to have a structure that includes support staff and management information systems that allow tracking of franchise networks key performance indicators (KPIs). While such systems may not appear necessary to start with, and that may be true, there are over 1000 franchise systems in Australia and 50 percent have less than 10 franchise units.

With all the choice available, smart prospective franchisees are getting switched on to the fact that if smaller franchise systems don’t have plans to manage their growth, then they as a franchisees will be negatively affected. Plan ahead and invest in infrastructure.

2. Financial data will be invaluable
The franchising industry as a whole has been slow to take up readily available technology to monitor franchisee’s financials remotely, as has been shown with below par results in a recent satisfaction study.

Setting up a centralised system that enables the franchisor to see franchisee’s financial data is an invaluable tool, both for franchisor and franchisee.

Firstly, the franchisor will be able to keep track of revenue, profit and loss and cash flow on at least a monthly basis. Having the figures to hand will help mentor and guide franchisees if their financial figures and leading indicators are askew.

Secondly, benchmarking the franchisee against other franchisees in the network provides a great opportunity to learn and improve.

3. Be prepared to be strict on financials
Many franchisors fall down, meaning that they have a financial system but fail to get franchisees to comply with it.

Many franchisors are happy to do a 20 point audit on store appearance or a seven point checklist on how a franchisee answers a phone, but when it comes to financial numbers many franchisors have been known to be a bit slack on compliance.

This is an area to be tight on. It is advisable to seek relevant legal advice about the wording of agreements and remain strict about financial reporting deadlines.

I have heard back from countless franchisees that love getting financial benchmarking data, but are so frustrated that they have to deliver their financial figures while fellow franchisees can get away with not reporting their financial data at all.

4. Mentoring is king
The relationship between a franchisor and franchisee is vastly different to an employer/employee relationship.

An employee management style simply won’t work for the majority of franchisees when it comes to getting them buy in to a new idea or guiding them through a problem. As business owners themselves, franchisees don’t want to be managed, they want to be mentored. Ensure that support staff are either qualified as business coaches or put them through training courses to hone their mentoring skills.

5. Lifestyle and systems go hand in hand
When it comes to franchising there is always talk that franchisees will get into a business to have better control of their work-life balance.

Many operating systems in existing franchise groups were set up and then replicated. However, since then very little has been done operationally to make those systems more efficient. There are some quite amazing labour saving pieces of technology available today which can save hours of administration time for franchisees, freeing them up to spend more time with family and friends and achieve the work life balance they seek.

6. Don’t leave human resources entirely in the hands of franchisees
While creating a distribution network, don’t leave the human resources function entirely in the hands of the franchisees. Most are great dealing with the customer, but lack experience in hiring and managing staff.

Just as making a great product requires an operations manual checklist, take time to set up best practice guidelines for the type of people franchisees should hire and how to manage them.

7. Make sure your existing operation is achieving its financial goals
Many new franchise companies are eager to franchise even before they have optimised their own customer experience and maximised revenue streams.

With the entrepreneurial itch driving many company owners, the temptation is to get the concept to market quickly. There is much to be said for balancing that approach with fine tuning a business and proving that it is a roaring financial success.

Ask customers their opinions on what would make them visit more frequently, spend more money, or recommend the business to friends. How to improve these key leading indicators can be explored in one-on-one conversations with customers. Alternatively, engage a research house to help get that extra 10 to 15 percent from the business.

If the business model is more financially successful than the next franchise system, it is going to prove far more attractive to a prospective franchisee and enable accelerated growth when starting to franchise.

Ian Krawitz is Head of Intelligence at 10 THOUSAND FEET, a market research house that works with over 150 franchisors. Visit www.10thousandfeet.com/intelligenceclub.html or go to www.toprfranchise.com.au to see the top ten franchise systems in Australia and receive a report on the ten aspects prospective franchisees should consider before buying into a franchise.

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