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Advisory 2011-08-12

Think global act local in franchising

Franchising undoubtedly is the best possible way to expand any business successfully. Every enterprise owner cherishes a dream to make it big with franchising. However it is not hundred per cent safe. Check out the reasons...

By Sub Editor
Think global act local in franchising

Developing a franchise needs lot of time, efforts and investments. In certain cases the franchisor gets engrossed in developing a franchise that his business suffers. There is a misconception among business owners that any product or service that is franchised can be developed into a flourishing franchise chain. Franchising in fact requires much more than just a good product or a service. Keeping oneself informed about markets trends, connecting to existing franchisees and talking to franchisor is not just enough. An entrepreneur needs to put in some extra efforts and thoughts and is required to analyse his current circumstances to develop a successful franchise.

Self analyses of the business

Not every successful business or its owner can run a franchise network. There are a few considerations that have to be kept in mind before taking the franchise route. These are as listed below:

Ensure smooth running of existing business: The process of developing a franchise system is so lengthy that sometimes franchisor gets so much involved into it that he loses his control over his businesses. So be sure of the extra time, money and efforts that are required while developing a franchise.

Brand’s reputation at stake: Taking up a franchise means, while earlier an entrepreneur was running one outlet successfully now he will be managing multiple outlets though not directly but indirectly. The failure of even single franchisee may harm the reputation of a brand.

Increased responsibility: Initialising a franchise business requires a definite change in the role and duties of an entrepreneur. Therefore they should be ready and able to get into multi-tasking and handle every responsibility successfully.

‘Money makes the mayor go’: As a franchisor you have to invest a lot of money for franchising your existing business. Most franchise systems do not become profitable for the franchisor until at least 10 centres are up and running smoothly. Consequently, the entrepreneur has to rely on the original business for some time to support him and provide the working capital necessary for the franchise expansion.

Franchisor need to be multi-tasking: As mentioned all entrepreneurs do not have all the skills as required by good franchisors. Necessary skills for planning, implementing and administering a franchise program are a must in the franchisor.

Money management, patience pays

A potential franchisor aiming to make a lot of money from his franchise network may lead his existing business towards failure. In the early stages, the expenditures are high and the revenues low. New franchisor has to incur cost of franchise documentation, creating and registering the necessary trademarks and logos before franchise expansion. Many new franchisors make the mistake of assuming that the franchise fees will cover all these costs and also produce a tidy profit. In fact, in new franchise systems, the front-end franchise fee is not high enough to cover the direct costs of establishing a franchised unit. Establishing a franchise unit requires the costs for site selection, lease and franchise negotiations, franchise sales, construction supervision and training etc. Therefore, if a new franchisor is hoping to get large profits, think again and limit your expectations.

Complementary discounts for pilot franchisees

The new franchisors may have to face another reality. The initial franchisees may demand special offers like low franchise fees or low rates of royalties than planned by the franchisor as complementary offers. In most cases the franchisors have to agree to such demands. In certain cases the franchisors may also have to face losses initially.

Training and support provided by the franchisors to his franchisees also requires lot of investments.  As a single operator, the entrepreneur also needs workforce as compared to a franchise owner. Expenditure on increased work force and trainers is another expenditure that a franchisor needs to invest into.

Conclusion

To conclude it would not be inapt to say that it is high time for all those aspiring entrepreneurs who have been dreaming about running a successful franchise network to self analyse their financial circumstances, personal responsibilities and brand’s reputation before zeroing down on  franchising. So do not just rush into franchising, think, develop, analyse and create successful a franchise system.

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MITHUN : 29, Mar 2011 at 07:27 AM
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