Franchising your business

Good franchise concepts are teachable and repeatable. In other words, they can be explained to other people, grasped readily, and duplicated. The best way to achieve this (and the only successful way in franchising) is through strong systems. These should be based on operational documents that allow the system to be copied by others. It must also be a business that can be run in a non-centralised way.

Tip: If your business is based on your personal involvement every step of the way and is run on the basis of knowledge that exists only in your head, you’ll have trouble franchising it. Successful franchisors are able to create detailed operating manuals that set standards and describe procedures for every facet of the business. These are then implemented through training programmes for franchise owners, managers and employees.

Over and above being repeatable, the franchise concept needs to be supported. Franchisees invest both time and money in the concept you have not only created, but sold, and they can be demanding when it comes to support and training. Before you commit to franchising, make sure you have the time and inclination to support multiple franchisees.

It’s important to remember that even though your franchisees will furnish the capital required to start each new business, developing a franchise programme requires your own investment of time and funds. It is recommended that you use the services of franchising professionals.

The cost of professional advice to get you going the right way is often less than the cost of opening one additional company store – and it’s certainly less than having the whole concept fail.

In South Africa, franchising is not a regulated industry, which is why it’s important to get expert advice before franchising your business. You will need to adhere to the Consumer Protection Act, and you want to ensure that your disclosure documents and franchise agreements follow best practice.

In order for franchising to work as a legitimate growth strategy for your brand, you will need to ensure you have a good reputation within your industry that other potential franchisees will invest in.

Here are the elements required of a good franchise programme:

The prototype

While this is not a legal requirement, a prototype is a good way to illustrate that you have something of value to offer. Selling a franchise based only on an idea is a long-shot at best – remember, you are asking people to invest in your idea. For many business owners, this investment is their life savings, or even their retirement plan.

A prototype is also a reasonable way of finding out if your idea will work; if it’s profitable, and most importantly, if it can be duplicated. It can also become a live training centre for future new franchisees and a testing place for new services, products and techniques.

In addition, many of the most successful franchises have a number of head office-owned stores. They ensure that the franchisors stay in touch with store operations and customer trends. They are also a good source of income, allowing the franchisors to not rely completely on franchisee royalty fees.

Documented systems

Once you have your prototype, you need to document how the business operates. The written procedures of your business methods will become the textbook for training new franchisees, as well as a formalised operations manual.

A franchise’s operations manual is a valuable document that should cover everything from start-up activities to office procedures, marketing to personnel management. It’s a step by step list of everything that makes your system work, including how to implement and run that system.

Make the information as lively and accessible as possible. Illustrations, tables, and lists can help. This should not be a document that sits on a shelf gathering dust. It’s the heart and soul of the franchise’s daily operations.

Whether you write the document yourself or get an expert to assist you, make sure to have it reviewed by a competent franchise consultant as well as an experienced franchise attorney.

A protected trademark

A protected trademark is one of the most valuable assets of a franchise programme. A trademark represents the brand – and it is that recognised brand that franchisees invest in. Failure to protect a trademark is a typical mistake made by new franchisors.

Make sure your first task is to develop a name that can be protected. This means ensuring that it isn’t being used by anyone else already, and then registering it with the CIPC.

Many franchisors start marketing their concept before they protect their name, and this can be a costly mistake.

Tip: Hire an experienced trademark or intellectual property attorney to do the recommended search and application process for you. It’s not a very expensive project, and it can save you thousands in the long run.

Marketing materials

By now your legal documents are being developed and your operations manual is being created and developed into training materials. You now need to turn your attention to the marketing tools that will help you sell franchises.

It is recommended that you work with a franchise development consultant who has experience in designing these sales materials, which will most likely include a DVD that introduces your concept and company to potential investors, a franchise brochure, and training on franchise sales techniques.

You will also need to know what to disclose to prospects to avoid pitfalls like making illegal financial performance representations. You will also need to develop a marketing plan that optimises your franchise advertising budget.

This will help you to generate an adequate number of franchise leads, which will be needed to meet your franchise sales goals. Track the results of each medium you choose to use carefully and see what works and what doesn’t so that you can adjust your plan as necessary.

The Franchise Disclosure Document

Franchising starts with the development of a Franchise Disclosure Document. The FDD, as it can be known, must be prepared according to strict guidelines.
It should include the following:

• An outline of your offering, including franchise fees, royalties, marketing fees, advertising offered by the franchisee, training, the franchise term, renewal provisions, and dedicated areas.
• Your business history and the experience of your principal officers.
• A report of your financial preparation for franchising.
• A copy of the actual franchise agreement, along with any other contracts that you will execute with your franchisees.

Because of the importance and lasting effects of the decisions included in the FDD, it is recommended that you work with an attorney who specialises in franchise law, and that you prepare a detailed business plan that outlines these business decisions before legal documents are drafted.

Your plan should also include a realistic financial analysis that tests a variety of options for fees, royalties, organisational structure, territory size, and growth options before any details are finalised.

When you are ready for your legal documents to be drafted, it is recommended that you work with an experienced franchise attorney. Although this may sound like an expensive task, a well-prepared FDD is the foundation of a solid franchise programme.