Becoming a franchisor

Do you want to become a franchisor? This is a question many business owners have contemplated and, for many, the decision has been the key to building a successful business.

Do you have any idea of what is involved? Could it even be possible, given the size of your business? Are the risks too great? Is there too much competition in the sector? The decision to implement a franchising strategy in your business is difficult, but important.

Franchising has many definitions, ranging from business model to marketing system to human resource strategy. This indicates the growing diversity with which small business owners and large corporate groups are adopting franchising as a strategy.

In recent times, the success of those such as the Boost Juice franchise, Gloria Jean’s franchise, PoolWerx franchise, Harvey Norman, ANZ Mortgage Solutions, and the recent entry of groups such as the Escape Travel, has prompted many organisations to consider franchising. The franchise strategies of businesses such as the Grill’d , Matchbox, Healthy Habits, Pie Face, Trampoline, Wrappings, and Paraffine have also demonstrated that businesses of all sizes and industries can develop a franchise strategy to succeed.

How do you know when the time is right?

There is no single statistic, timing, or set of circumstances that will enable anyone to give a concise answer to this question. It depends on your business, industry, level of development within the business, the timing in your career and business cycle, the cash flow and profitability, and the resources available – to name just a few of the considerations.

Cash flow and profitability

The first point to clarify is the basic precondition to franchising – the business must be in operation. To contemplate developing a franchise system on what is nothing more than a well developed idea is not a sensible decision. A proven cash flow and profitability will be signs that the business is operational and that the end consumer has consistently demonstrated the business has sustainability and relevance.

A burning desire to grow

This is one of the most important attributes to define a franchisor – a person who is not content to operate one, two, or three locations or to operate in one state.

People challenges

Do you have a strong foundation to the business that is delivering more work than you can find people? Is there another level of expansion or performance possible to leverage the brand and core operations if the right people could be found?

Do you have a churn of people that is creating a quality issue with your consumers? How much of the company time is tied up with people issues? All of these are issues that, in my experience, have been a catalyst for people considering franchising as a strategy.

Franchise enquiries

Is this store franchised? This is a common driver for founders and owners considering franchising their business. This, in itself, is potentially dangerous – the reason being that there are combinations of motivational factors that make franchising successful.

Given the increasing exposure of franchising, it is increasingly common to meet or interact with people who may be thinking about being a franchisee or who know someone who is already a franchisee. Interestingly, it is reasonably rare for many initial franchise enquiries to translate into a committed owner-operator with the necessary capital to sign a franchise agreement and operate the business. It does happen, but often with people who are interested in a quick dollar or the transactional franchising model.

At the crossroads

The crossroads are something that most people approach in their business journey at some point in time. Do you sell and move on? Is national growth an option? Is acquiring a competitor an option? Do I need to operate more company stores before considering franchising? This is no different for the small business owner that is considering the future direction of their business.

The timing of making the tough decisions arrives very early for some owners and very late for others. The people that are thinking about the future direction early tend to make a habit of thinking three steps ahead. For instance, many people establish their first store or mobile offering knowing they are committed to franchising the business at some point, and consequently, focus on brand, processes, systems and many other factors that will make scalability more achievable.

Competition

Competition is always an interesting driver of the thought processes of a business owner. At its simplest, there are three options: we are better, we are the same, or we are worse.

It is not always a matter of timing or having to be the first-to-market. Boost Juice was not first-to-market, but clearly emerged as the market leader.

Capital

Firstly, there are those that build a strong foundation with a view to developing a sustainable business for the franchisor and franchisee. Secondly, there are those that seek to make money from selling franchises (transactional franchising) and are more focused on franchising than the value proposition to the end consumer.

Getting the right advice

The quality of the development of the franchise system, business, and legal documentation is dependent on the quality of the advice you receive. The research and due diligence a franchisor completes at the outset is extremely important.

Potential franchisors should consider reading information about buying a franchise and running a franchise.

The Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.