By Eric Parker
Over the last 20 years we have consulted to many existing franchisors and potential franchisors. We are often asked to share what we consider to be the most common mistakes made by franchisors, so here is our list:
1. Not perfecting the pilot operation prior to franchising
In franchising you are expanding the model that you believe is optimum. It is very difficult to approach franchisees later and request them to invest in significant changes to the business model i.e. invest additional capital for eg systems. We do however accept that the model will be upgraded from time to time with tested and proven changes. This is why the franchise agreement states that the franchisee will operate to the operations manual that will change from time to time.
2. Not reviewing the franchisees financial results on a month to month basis and benchmarking the results
It is imperative that you monitor the franchisee to ensure their success and to make sure all the creditors have been settled. If the franchisee is unprofitable they must be placed in “Intensive Care” and receive special management attention.
3. Not having regular constructive communication with franchisees
Franchisees want to be heard and listened to. They have a lot to contribute because they are at the coal face, dealing with customers.
You need to have a well-constructed Franchisee Council governed by strong bylaws to give franchisees a constructive way of contributing their input.
4. Selling a franchise and not awarding it
The majority of franchisee enquiries will not be good franchisees. Normally your worst franchisees are your first franchisees because the franchisor is tempted by the big upfront fee and does not evaluate the franchisee properly. You must fully evaluate potential franchisees and award the franchise to suitable candidates. We use the E test (psychometric test) to assist you to evaluate the potential franchisee.
5. Poor or no site evaluation
Some franchisors are prepared to take a chance on a proposed site because it is not their capital being put at risk. It is imperative that the franchisee is successful and one of the most critical success factors is site selection.
The Franchisor must insist the franchisee uses G.I.S. (Geographic Information systems) to evaluate his proposed site and area. These systems are now available online, for example Africa Eye.
6. Under estimating the franchisee’s cash flow requirements
All franchisees need additional working capital to carry them over the start up phase and the delayed V.A.T. refunds. This additional funding is often ignored by the Franchisor in his effort to sell the franchise.
7. Allowing non owner operator franchisees
Franchising works because of the impact of an owner operator in the business vs. an employee.
An investor in the business will not fully understand the business and cause the franchisor many problems. (Three is a crowd). The only way to mitigate this is to insist that the store manager also has equity.
8. The franchisor receiving high rebates from suppliers at the expense of lower prices
The franchisee purchases the franchise believing that because of economies of scale he will receive favourable prices. The franchisor owes it to his franchisees to negotiate the most favourable prices. Franchising is all about trust and if the franchisee finds out the franchisor is receiving undisclosed rebates the trust is broken.
In addition if the franchisor supplies goods to the franchisee he must reduce his mark-up to cover costs and not make excessive profits because he receives a royalty/management service fee.
9. Not maintaining the required standards
The franchisor must ensure the operations manual is up to date and that the franchisee is adhering to the required standards. Once standards start to slip it is difficult to pull them back.
10. Insufficient franchisee support
The field service consultant is a very important person in ensuring the concept’s success. Franchisees need ongoing support to ensure they maximise the potential of their business. This support must be well documented and implemented.
NOTE: It is not a good idea for the Franchisor to over promise and under deliver – rather under promise and over deliver.
11. Lack of local marketing
It is very important that the franchisee becomes the focal point of his community – he/she must be encouraged to do ongoing aggressive marketing. This may include sponsorships of the local school soccer team etc. where the franchisee is seen to contribute to the community.
12. Lack of training
Most Franchisors do not give the franchisees and their staff sufficient training! Train and train again – a well-trained, motivated cadre of staff will create a meaningful benefit for the business.
Hope these mistakes help you to not make them yourself. We would welcome your comments – please contact us.