Essential factors to consider when franchising a business

This article is based on an interview conducted on Besigheid wat saak maak (Via, DSTV Channel 147)

To franchise a business takes diligent research and development of the franchise model. In addition, franchising is not a once-off transaction; it requires a commitment from the franchisor to keep growing the business and the brand.  Here are some essential factors to consider when franchising a business:

  • The potential number of franchises that can be opened – Franchising works on a multiplier effect since the franchisor achieves a return on investment once the system has 10, 20 or 30 outlets.  If the market can only sustain a few more branches and further expansion potential is limited, franchising may not be the best expansion model
  • The potential Return on Investment (ROI) for franchisees – The financial potential of a franchised business must be such that a franchisee can draw a market-related salary, pay franchise fees and achieve ROI within a reasonable timeframe (usually 3-4 years). If the business can’t offer this financial return, it may not be feasible to franchise
  • The franchise value proposition must be enticing – Consider the franchise offer and whether it will be attractive for potential franchisees. It should include access to group benefits such as collective buying, collective marketing and franchisor support. Also, any franchise opportunity will compete with other franchises in the category, so it’s advisable to research other franchise opportunities and develop a franchise value proposition that is competitive in terms of fees, establishment cost and group benefits
  • The franchisor’s business should be formalised – Before franchising, it’s essential to review the franchisor’s business to ensure that all aspects of the business are formalised, from governance to the structure that will support franchisees. Entrepreneurs may not realise the additional pressure on resources and administration that franchising brings to the fore and should prepare for this
  • Packaging the franchise offering – A vital benefit for franchisees is access to a franchise package that includes an operations manual and training.  The operations manual is more than a guideline of operations procedures; it should also offer guidance on aspects such as human resources management, financial planning and management and business administration. The franchisor must also develop training based on the operations manual to equip new franchisees to run their businesses successfully

Franchisors should be ethical and consider both the business value proposition and legal requirements when franchising. The best way to ensure that you cover all the bases is to get professional assistance from a franchise development consultant. For more information, contact us.

Can any business be franchised?

How to Franchising your business in easy steps

This article is based on an interview conducted on Besigheid wat saak maak (Via, DSTV Channel 147)

How franchising works

A franchise is a system whereby a successful business owner gives third parties or franchisees the right to use the business’s trademark and know-how for their own profit. The franchisee signs a franchise agreement and pays license or franchise fees in return for these rights.

Can any business be franchised?

Franchising spans many industries from the cradle to the grave, from the retailing of baby products to the provision of funeral services and many other categories.  However, to franchise successfully, a business needs to answer the following questions positively:

  • Does the business have a high degree of standardisation?

Everything from the product offering, transactional and accounting systems should be standardised to achieve successful franchising. Businesses with a high degree of standardisation tend to franchise successfully. This is because franchisees find it easier to follow systems and set procedures while franchisors can better monitor quality and performance in a highly systemised franchise.

  • Is the business operating in a growing industry or market?

For franchising to flourish, the business must be an industry or market that shows consistent and continuous growth.

  • Is it possible to transfer the necessary skills to operate the business to a franchisee?

The business concept and operating system should be packaged into training that can empower someone without industry expertise to run the business.

  • Does the business have a strong brand and solid marketing methods?

Strong brands have the potential to be strong franchises. A strong brand gives a franchisee instant market recognition and support. The business must also have solid marketing plans in place to support continued brand growth.

  • Will both the franchisee and franchisor derive financial reward and sustainability from operating the business as a franchise?

Franchising works when both the franchisor and franchisee make a return on their investment. The franchisor must carefully investigate the business case for each franchise opening to ensure market potential and subsequent profit potential.  Franchise fees must be affordable and market-related.

If you are considering the franchising of your business, it’s crucial to interrogate these and other aspects that can make or break the success of a franchise. The best way to ensure that you cover all the bases is to get professional assistance from a franchise development consultant. For more information, contact us