You have heard about it, you have discussed it with friends and family, it excites you to think you could do it…but what do you really need to know before you consider franchising your business?
Franchising is a great growth strategy for profitable businesses that have a system that can be replicated, who want to build and expand their brand without the expense and hands on role of company owned outlets. But there are a few things that you need to consider before you plunge head first into this exciting endeavour.
There are 5 areas you need to contemplate when considering franchising:
Branding and Intellectual Property
1. Branding and Intellectual Property (IP)
Ownership of the IP of your business is very important when you are franchising your business as this is the most valuable thing you have. So it is crucial that you own all of your IP such as your business name, logo, domain names, website, and manuals, systems and anything that has your name or logo on it. You also need to make sure that none of these items are owned by a graphic artist or other that have created these things for you; if they are you need to get the ownership signed over to you. An IP lawyer may assist you if required.
Branding is also an important first step in franchising your business; you need to have your brand consistent in everything that you do, print and promote.
Franchisees are buying the right to use your IP and Brand and they and you do not want to run into difficulties after the contracts are signed.
This area my seem like common sense but it is still an important step in gauging whether your business is ready to franchise. Take a look at your financial modelling, is franchising a viable option, will you and the franchisees make money, how will the fee structure affect your business?
The common notion is that you need to have 3 years’ worth of financials to be able to franchise your business. This is not necessarily true, as some franchise systems have franchised prior to reaching this level, however, having some years of experience behind you adds credibility to your business and provides actual figures for your potential franchisees to make an informed decision on your franchise system. Remember your buyers are looking for a proven, profitable system that works!
The next step is to review all your marketing and think about what you as a franchisor would need to do to promote your franchise as well as your business and what type of marketing your franchisees need to undertake. It is during this step that you will come across terms such as Local Area Marketing (LAM) and Marketing Levies.
Local Area Marketing is the marketing that your franchisees will undertake in their particular area or territory. It is something that is run and paid for by the franchisee as this marketing generally will only promote and attracted business in their territory.
The Marketing Levy is a fee that the franchisee pays into a Marketing Levy account to cover the cost of national marketing, marketing that benefits the whole business. This might consist of national advertising, websites etc.
4. Business Systems
Franchising is all about duplicating a business system in a new area or territory. Therefore it is imperative that your system can be duplicated and is efficient enough for a franchise system. It is also during this process that you will be able to ascertain whether your existing products or services are appropriate for the inclusion in your franchise system and whether your prices are suitable.
Take particular note of your administration and bookkeeping systems, are they appropriate for your expansion or should you consider some new software and procedures?
Finally take a look at how you ‘do’ your business; do you have training programs for staff? Can they be implemented for franchisees? What kind of on-going training will your franchisees require? It is also a time to look at benchmarking and scorecards for your franchisees if you have not got these in place already. This is a great time to really get in and document what it is you do and how you do it.
Finally you will need to have your operations manuals in place and your legal agreements prepared by a lawyer.
Whether you are ready to franchise now or in the future it is never too early to start systemising your business and jotting down your systems and procedures. It ultimately will help you run a more organised and efficient business, that when the time is right to take the franchising step you will be already be on your way!
Cariblue works with its clients, either in a mentoring or hands on role, to assist them to franchise so if you feel you are ready to start the journey, contact us!