Perhaps restricted by a shortage of growth capital, or finding it difficult to identify sufficient & suitable key staff personnel to support a growth plan, many businesses are now looking closely at the franchise phenomena. This enables companies to grow by utilising other peoples skills, labour and capital which when put together with other key elements can realise faster market share growth and expansion than otherwise might be the case.
And that is just what franchising is; quite apart from the legal definitions, franchising is a concept to facilitate growth in market share, by bringing a group of like-minded people together under one Brand banner and business system.
Before embarking on a franchise plan, it is important for business owners to understand some of the implications of growth by franchising.
The business to be franchised must be a well-proven profit maker with clearly defined objectives and market share opportunities. Without a proven history of success, it is unlikely that any franchising program would be successful.
Perhaps the most important element to consider is the management structure that presides over a franchise group.
Franchisees, unlike employees, own their own business and have substantial ‘rights’, and providing that they are in line with the terms of the franchise agreement, can operate their business with a degree of independence. They must however, follow the guidelines to the letter so interdependence is more the reality.
The challenge for the franchisor is to manage a group of people, all with differing personalities and expectations. Successful franchisees are the key to the success of the entire group and the franchisor must do all that is possible to nurture their success within the scope of the business system and prevailing market conditions.
There is an inherent culture of continuous improvement in franchising and this is one of the reasons why franchise businesses dominate in market leadership across most business sectors. It is not uncommon to identify the top three market leaders as being in a franchise structure.
Most importantly - first rate communication and people skills are essential -without them success becomes more difficult.
Potential franchisees look for leadership, security and profit in an opportunity and if the risk is just too high because the business has not been proven, then they simply will not invest in it.
Business proprietors must understand, if they pursue franchising as a growth strategy, then it is their responsibility to where possible, remove every known risk from the business before it is franchised. Franchisees will always be prepared to pay for success and they are entitled to expect to be buying into an ‘Environment for Success’, and certainly not to be sold into an experiment at any risk level.
There are other critical elements to ensure the success of any franchise and some of those are:
A healthy gross profit margin
A systemised business operation
Strong marketing capability
Identifiable market share opportunities
A distinctive Brand name or image
All of this however, is not enough. It must be possible to train others to operate a ‘like business’ in another location, and ensure that the system, (if followed), will minimise the risk of failure. A true franchise must be system driven; what franchisees then need to do is drive the system to the best of their capabilities and with the guidance and support of the franchisor. Whilst this may sound simple it is the essence of successful franchising.
The prospects for the future in a franchise business must be safe and secure, relatively unchallenged by consumer trends, or technological change. The sector is regulated under the Franchising Code of Conduct and controlled by the Australian Consumer and Competition Commission (ACCC).
During the process of preparing a business for franchising, a number of documents are created, namely:
Operational manuals for franchisees
And many more…
Each of these systems and related documents require considerable forethought and development to be certain that they are tailored to match the business in question.
The Disclosure Document is a specific requirement under the Franchising Code of Conduct. It is vitally important that all of the facts pertaining to a franchise business are disclosed to potential franchise owners to avoid any misunderstandings at the start and to avoid any subsequent disputation that may lead to lengthy and expensive litigation.
Franchising is an exciting and dynamic growth strategy that for most is very rewarding. It is a serious step to decide to become a franchisor, so every consideration needs to be taken before entering the sector. If sufficient thought is not given to the prospects for your business in a franchise structure, you could be inviting unnecessary challenges and taking unnecessary risks.
The growth rate of franchise businesses has, for more than two decades, led the small to medium business sector across Australia, and it continues to do so in spite of the fluctuating economy and some regulatory limitations.
So, in summary, franchising is a popular and successful growth strategy that suits the majority of businesses but not all.
In the event that you are curious about whether it is appropriate for your business, you should seek professional advice from a recognised franchise consultant. It is not simply a matter of having a Franchise Agreement drafted by a solicitor, (that could prove to be fatal for your business); nor is advisable to copy other systems to save time and money.
You will need a balanced feasibility study conducted for your business, where a wide range of operational and financial affairs are assessed and tested against the proven principals of Business Format Franchising.