By Natalie Veli
One of the main drivers for purchasing a franchise is access to an existing brand. Franchisees also expect that they won’t be alone in business, they will get ongoing support and guidance. They put all their trust into the franchisor to be there for them and since they do that, it is important to remember that you, as a franchisor, need to sell yourself as the trustworthy person they are looking for, or they may just move on to the next best thing.
Like any entrepreneur, a franchisor can make fatal mistakes that will affect not only themselves, but also their franchisees. Here are some common ones and how you should prepare to avoid these happening:
1. Not perfecting and proving your business concept
You need an established track record with proof of profit before thinking of franchising. A franchisor needs to prove the concept in his/her own business, not that of the franchisee’s.
2. Underestimating how much capital it takes to get to royalty self-sufficiency for a franchisee
Don’t underestimate how much capital it takes to get to royalty self-sufficiency for a franchisee. Test the viability of your franchise model, this includes:
- The turnover – it should be enough to cover royalties after all other costs
- The franchise model should have a 3-4-year return on investment
- Development or set-up costs for your franchise should be practical and affordable but still not done ‘on-the-cheap’
- Do an in-depth franchise analysis
- Monitor productivity on an ongoing basis and do benchmarking to determine the norm for the different areas your franchisees are in. (Benchmarking is one of the services Franchising Plus offers, get in touch with us if you need assistance)
3. Generating additional revenue unfairly from product supply and rebates
The franchisor’s role should be to get franchisees running profitable businesses and one mistake franchisors make is that they become greedy by generating additional revenue unfairly from product supply and rebates. To avoid this, try drive prices down for franchisees. Your main profit should be driven from royalties on sales. This creates an alignment of interest.
4. Not doing site assessments properly
Ensure that as a franchisor, you conduct a full site evaluation for your potential franchisee. It is critical that franchisors ensure that site assessments are done properly for each new outlet to prevent franchise failure due to a bad location.
5. Making bad recruiting decisions
If you somehow get into a debt trap and think that a good way out is to sell off franchises, fast, just to survive, STOP! You can make very bad recruiting decisions and it can backfire. This should always be done carefully, be selective and use psychometric assessments to better assess potential franchisees.
6. Offering insufficient franchisee training
Initial training should be linked to your operations manual and should cover all aspects of the franchise business, including general business training. Insufficient new franchisee training will harm your brand.
7. Not helping your franchisee’s profitability
Ensure that you are involved with your franchisees and helping them with adding value to his/her profitability. Try not get caught up in concentrating only on policing franchisee conduct.
8. Not keeping the operations manual up to date
The operations manual/system should always be kept updated. If not, it is not a living reference tool that adapts to changes in the business environment. This implies it doesn’t add value to franchisees and is most likely being generally ignored. Make sure it’s online, user friendly and up-to-date for your franchisees.
9. Neglecting brand development
Franchisees expect consistent marketing efforts for their marketing contributions, don’t neglect brand development!
It is up to you to avoid making these fatal mistakes. Make sure that you plan ahead and get the help you need on a franchisor level to safeguard your network and keep your prospective and current franchisees happy. Franchising will always reward a business that is unique, profitable, enjoyable, difficult for competitors to copy and offers franchise candidates an acceptable and predictable return over the long term.