When considering franchising a business, many entrepreneurs think the first step is the development of a franchise agreement. We see developing a franchise agreement as the very last step in the process of franchising your business. The very first step should be an in-depth evaluation of the strategy behind franchising.
Your strategic planning phase should include questions such as:
- What is the motivation for franchising your business?
- Is it rapid replication with third party capital?
- Does the owner want to extract him or herself from operations?
- Who will champion the franchising effort?
- What are your long-term objectives?
- Do you want to list or sell the business one day? Franchising is a long-term commitment as franchise agreements are usually signed for a term of five years or more.
- Do you want to build a legacy and to keep the business running for the future of your family?
- Is the current business operating optimally?
- Does the current business have the best possible systems in place and is the product/service offering the best it can be to maximise franchisee profits and return on investment?
We often find that asking these questions, amongst others, reveal a lot about the state of the business, including gaps, for e.g. in the model, operations or structure etc., that should be addressed prior to franchising.
Once a franchise offering is launched, it’s difficult to re-design it or to implement massive changes as franchisees sign on for a specific offering. Therefore, strategic planning for a franchise is an absolute must.
When developing a strategic plan for franchising a business, we cover the following aspects:
- Product and service offering: Does your offering have longevity, is it up to date with technology and is the “basket of goods” offered enough to ensure franchisee profitability?
- Systems and control mechanisms: Does your business have a good back office and front of house system, will it give you, the franchisor, access to monitor franchisees performance and does it have the capability to grow as the network grows?
- Infrastructure requirements: Does the franchisor have the necessary staff and resources in place to develop and drive the franchise initiative and to provide adequate support to the first franchisees? We also forecast the growth needed in infrastructure to keep up with network growth.
- Strategic alliances and partnerships: Are there any alliance and or partnership opportunities to explore that may add value to the franchise network?
- Financial analysis: The financial analysis will help to determine potential return on investment for both franchisor and franchisees
- Competitor review: This important part of the strategic plan is to ensure that the franchise has a unique selling proposition and competitive edge
- Review of legal implications: Legalities are relevant to the particular industry of the franchise as well as franchising in general
From the above it is clear that strategic planning for franchising is an extensive exercise and a critical first step in developing a franchise network. It determines the roadmap for franchising the business and forms the basis of a business plan for the franchisor.
If you are considering the franchising of your business, we can help you to determine franchise feasibility and to do the necessary strategic review and planning to get franchise ready. For more information, contact us.