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Oct, 16 2012

IS YOUR BUSINESS FRANCHISE-READY?

While franchising continues to be hailed as the most popular model for facilitating business growth, there is a need to take stock of one's business to know of its preparedness so as to decide if it is now the right time to take the franchise route.

ALL along we have been engaged in intriguing discussions about franchising being the most popular method for facilitating the growth of any business and the guarantee it offers in the quest for scalable, efficient and sustainable models in a resource-constrained situation.

Conceivably, the best intimation of all this is whether any business has already had franchise enquiries. But even before contemplating franchising the business, the business owner would need to consider whether franchising is the right method of growth for the business? Before jumping on the bandwagon of franchising, the pertinent question to be answered is if the business is franchise-ready.

Issues to ponder over

Certain factors need to be kept in mind before the business owner decides to franchise the business. These factors are:

  • Can others/future franchisees replicate the success of the business? Historically, the businesses most likely to be successful in franchising are ones who are in business for a certain period of time, have strong operating platforms, and have successfully launched signature products or services at various company-owned operational units.
  • What is the USP of the business and does the USP lie in the product or process? It is mostly observed that businesses ready for successful franchising are ones that have developed strong operating platforms and have successfully launched signature products or services at various company-owned operational units
  • Does a system exist which can either be duplicated or monitored? As franchising a business would entail providing for a blueprint of operations, marketing, training, financial and legal aspects of the company/business, which would mean start-ups might not be franchise-ready as yet.
  • Does the business owner have the capital backup? Costs would be incurred to support expert advice of lawyers, accountants and franchise consultants to help put the franchise package together. To beguile prospective franchisees, franchisors need access to capital for organic growth of franchisor operations and dedicated management with industry-specific business experience before seeing any franchise fees roll in from new franchisees.

Getting down to brass tacks

After the prospective franchisor has thoroughly analysed her business model and is sure that the business is fit for franchising, the next important step is to develop the terms of franchise. This will include agreements embodied in the documentation that leads to a legal and hassle-free franchise agreement.

Core terms of the agreement need to include but are certainly not limited to:

  • The amount of fees to be charged, both initially and over the entire franchise term
  • The duration of the franchise term and subsequent renewal terms
  • Any required advertising expenditures to be made by the franchisee
  • Any restrictions on the franchisee's offering and purchase of products to be used in the business
  • Obligations of the business owners as well as the franchisees
  • Mention of any restrictions on the franchisee's ability to own and/or otherwise operate competing businesses or franchises
  • Inclusion of a summary of any protected territory around the franchise business in which the franchisor covenants not to develop or allow the development of other similar franchise businesses; and
  • A summary in case of termination and transfer provisions applicable to the franchise

Finally, when all the above terms and agreements are in place, the entire franchise agreement needs to ensure that a proper balance is struck so that the interests of the franchisor/business owner are protected and the franchisee sees value in such a business opportunity making it a win-win situation for both.

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