There are two sides to any franchise agreement, and we often focus on the franchisee. It’s a sensible business model, with a higher success rate than a ‘regular’ business you had to start from the ground up. Think about it. Most businesses – according to statistics – can take up to five years to find their footing and recoup their starting capital. With a franchise, they’ve already made it past that hump and are well in the red. Plus, they’ve established themselves well enough that they’re a known brand.
Buying A Franchise
From a franchisee’s perspective, this is a good place to come in, because the groundwork is done. The franchisee just has to sustain the name that’s already established, and their franchisor gives them all the tools they need. They get a proven mission and vision, marketing tactics, promotional material, they may even get a premises and the bulk of their seed capital. It’s a pretty sweet deal. So from the franchisee’s perspective, here’s what you need to consider before you sign up to build someone else’s brand.
Can You Take Orders?
Most franchisees already have a series of other businesses running, whether successful or not. It could also be a side project for somebody who’s employed and wants a source of income that doesn’t need their daily physical presence. However, this kind of person has very distinct ideas on how they like things being done. They’re used to being the boss. Are they able to step back and hand over the reins?
Because they’d have to follow all the instructions given by their franchisor. They can’t even change the curtains or rearrange the chairs unless their franchisor allows it. This is due to the uniformity required by franchise arrangements. It has to look, sound, and function exactly like every other branch of that brand, and this can be quite restrictive in terms of day-to-day business decisions.
Can You Afford It?
Buying a franchise can be cheaper than launching a new business, and franchise offers are specifically designed to entice you. They deliberately make the venture look as effortless and affordable as possible, and some even offer assistance with financing. As a result, you may not realise the full cost implications of what you’re signing up for. Franchise legal advice can make this much clearer, and that’s an added cost you have to factor into your budget.
Apart from the money, can you afford the time? As much as franchisees can be ‘sleeping partners’ they still have to keep an eye on the business. After all, if it flops, it’s your neck and wallet on the line. Can you stretch yourself thin enough to handle this new business? And do you have a team you trust to keep it running when you’re not there? Because few franchise purchasers intend to make it their new day job, and you may need to, at least until it settles.
Selling A Franchise
On the other side of the table, how can you tell whether your business is ready to expand? Are you willing to risk the mighty name you’ve built up and hand it over to strangers? After all, if they mess up, it’s your brand reputation on the line, not theirs. If they do well, you get the glory (and the money), but if they fail, the closed branch or upset clients are a dent in your brand’s social capital, and it could spread to other branches. After all, SJW’s may picket a single premise, but they’ll boycott the brand as a whole. Here are some considerations before you become a franchisor.
Is There Demand?
In this social media age, it’s pretty easy to tell where your customers are missing you, because they’ll tell you. If you have good analytics and routinely monitor your brand, you’ll have a comprehensive list of comments like ‘When is XYZ coming to my neighbourhood?’ You can also monitor calls and order requests whose content is, ‘Do you deliver to JKL?’ You could even shake things up with this popular tactic: ‘100,000RTs and we’ll open a branch near you.’ If they come, you will build it.
The second factor is whether you can find the right people to run your franchise. It’s a good system for promoting and developing top employees. You could build a programme into your brand where high-performing staff at certain pre-established ranks receive an opportunity (and financial backing) to set up a franchise. You could offer them prime locations, or let them pick a spot. They may want to take your brand to their home town. Conversely, some local talent may approach you with an offer to bring your brand to their city. It’s as good a reason as any, and a good shot at success.