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.