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Franchising Article

Posted by Carolyn Dufton on 21 April 2010
Franchising Article

Franchising Fears

So you've undertaken a franchise feasibility study, and franchising seems to be a workable option.

The franchising consultant has helped you assess the viability of franchising and the numbers and you've ticked the boxes;

  • The business has long term viability
  • There is sufficient profit within the business to create a Win-Win situation for Franchisor and Franchisee alike.
  • The business has been tested and has been running efficiently and profitability
  • The system can be taught and replicated
  • All the numbers stack up ensuring long term profitability for the franchisee
  • All intellectual property matters have been acknowledged and are in hand.

So now, there's a decision to be made. To franchise or not to franchise?

It is common for prospective Franchisors to get cold feet at this stageand that's good!

Franchising should never be undertaken lightly.

No responsible franchising professional should ever persuade a business to franchise.

Franchising should be a decision based on.............

  • Specific facts about the business to be franchised
  • The reality of being a Franchisor.
  • Thorough research to understand the franchising industry
  • A commitment to building a professional franchise network
  • An understanding and acceptance of the responsibilities of being a Franchisor.
  • A desire to share a business concept and to help others succeed.

There are common questions that are asked prior to making the franchising decision.

Are there any long term costs associated with running a franchise operation?

Essentially no.

You may choose to join the Franchising Council in your country, for which there is an initial joining fee and annual membership.

Incoming franchisees pay their legal costs to you. This covers the prospect's lawyer speaking to your lawyer on legal points, and the preparation of the specific documentation.

There are associated expenses with running a franchise organisation and these should have been covered in the feasibility study.

Annual conferences are at the franchisees' expense.

You may choose to provide training days or sessions at a cost to the franchisee or at no cost.  This does not need to be pre determined.

It is advisable that general support and personal visits are at no cost.

Other costs such as national marketing can be included in a marketing levy to which all franchisees subscribe.

Running a franchised business has similar ongoing business expenses as a non franchised business.

As the Franchise network grows expenses will increase but this should have been addressed in the feasibility study and not present any surprises down the track.

How will I recoup my initial investment in the franchise process?

The franchise process presents an ideal opportunity to analyse all aspects of the business to be franchised. The franchising process examines the business systems and strategies are developed. This is worthwhile in itself.

In many regards undertaking the franchising process is similar to having business coaching and it is certainly similar from a costing perspective.

The main difference is that there is a tangible outcome at the end of the franchising process which is a documented franchise system.

It is quite usual for the first one or two franchise sales to cover the costs of the initial franchise process.

I am frightened of losing control over the business system if I franchise.

Franchising offers the ultimate in control over the system and can and should incorporate extensive reporting measures.
A franchise agreement clearly states the Franchisee's obligations and if the obligations are not met the franchisee is in default of the agreement.

Expansive reporting structures and software applications can assist the Franchisee and the Franchisor with achieving compliance to the system.

Best franchising practice ensures that Franchisees understand the benefits of compliance and are encouraged to comply with the system.

What are the main benefits of franchising my business? Is it worth the cost and effort?

  • Franchising provides a growing business with a low cost expansion method.
  • Franchising contractual obligations provide an enforceable method of quality control.
  • Franchising provides ongoing income.
  • Franchising accelerates market dominance and brand recognition.
  • Franchising provides bulk buying opportunities.
  • Franchisees are self motivated independent business owners with a desire to succeed.

© franchisingplus

All rights reserved. No part of this publication may be reproduced or transmitted by any means, electronic, photocopying or otherwise without prior permission of the author as permitted under the copyright act.

Carolyn DuftonAuthor: Carolyn Dufton
About: Carolyn Dufton Dip. Bus (Franchising) heads the team as the owner and manager of franchisingplus. Carolyn has a wealth of small business experience, and many years of hands on franchising experience.
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Tags: Franchisor Franchising

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