Building a successful business is difficult, and building a franchise out of that business will take a lot of careful planning. Find out how you can succeed with your new business venture.
If you’re thinking of turning your winning business model into a whole franchise, you’re going to need a solid plan.
There’s a lot that goes into building a franchise, including finding the right businesses to incorporate, making sure your business model is scalable, creating specialised contracts and dealing with any contract disputes you run into from your franchisees.
In this post, we’re going to help you plan your future franchise by laying out the benefits and drawbacks. We’ll then be sharing some tips on how to start a franchise, so for all your business needs, take a look.
What is a Franchise?
Franchising is when a successful business allows third party businesses to use their tradename either through manufacturing, distribution or sales channels. These third-party businesses are known as franchisees.
The franchisees usually pay a one-off franchising fee to the business they’re using the tradename of, as well as a percentage of their sales revenue. In return, the franchisees receive guidance, support, marketing and financial planning from the franchisor.
There are three main types of franchise you can turn your business into, including:
Business format franchise
This is basically the model we laid out above; a franchisor licenses at least one other business who will trade under their branding, business model, and several other assets. The franchisor provides support and guidance to the franchisee.
Product distribution franchise
Product distribution franchisors allow their franchisees to sell their products, and license their logo for use. But, they don’t provide any ongoing support or make them prescribe to a business model.
Branded petrol stations are a good example of a franchisor supplying a product and the petrol stations selling that product with their branding.
Manufacturing franchisors allow a manufacturer to produce and sell products using its name and trademark. Beverage companies often work this way by selling their syrup to a bottling company who mix it and sell it on, much like a wholesaler.
What Are the Advantages and Disadvantages of Building a Franchise?
Now that we know what a franchise is, it’s time to look at the pros and cons of building a franchise.
Investment from the franchisee
When a prospective franchisee decides to manage a franchise for you, they invest their own money into the business and pay a one off fee to you. Then, you receive a portion of their sales if they are successful.
This means you don’t have to put any money into the business yourself. You just share the model with them, giving them support and guidance, and help them market themselves using your brand.
Franchisees tend to be motivated
A franchisee cares about their business and have gotten themselves this far. They also invest their own money in the company, so they really want to see it succeed.
Working with a franchisee won’t be like working with an unmotivated employee. They will heed your advice and do their best to make you, and them, more money.
Allows you to scale up and tap into other areas
Building a franchise allows you to scale your business up without having to build businesses in new areas yourself. You can franchise a company in an area you previously had no access to, and the more your franchise grows, the more areas you can branch out to.
One issue might be that the area you’re franchising a business in isn’t the same as the one you started yours in. Your business model might not be as successful there, but the likelihood is that the owner of the business you’ve franchised will know how to adapt it to their local area.
Lose some control
A lot of this depends on the specific contract you sign with your franchisee. But, in most cases, building a franchise means you’ll lose a degree of control over a franchisee location.
With the amount of money, time and effort they’ve put into their business, and with it being their business in the first place, they will want to assert a certain level of power over it.
The best way to deal with this is to foster a mutually beneficial partnership where you share your ideas with each other and work out what’s best for the business. After all, you both benefit from its success.
Potential for contract disputes and other legal complications
If working mutually with your franchisees doesn’t work out, and you end up butting heads over how things should be run, you’re going to run into legal issues. Both franchisors and franchisees have their rights, and if things cannot be settled amongst yourselves you might end up spending a lot of time and money on contract disputes and legal cases.
Top Tips for Building a Franchise
We now know what a franchise is, and what the benefits and drawbacks of them are. If you’ve decided that building a franchise is the right thing for you, the following tips should help you get started.
If you’re at the point where your business is good enough to become a franchise, you must know a thing or two about leadership.
Building a franchise, however, means that you have to apply what you know about leading your business to other businesses.
You are now a leader of leaders, and those leaders need direction from you on how to solve their problems, what new ideas they should adopt and how to manage their own teams to perform well. Earn their respect and their loyalty.
Plan your future
Where is your new franchise headed? What will the future look like? How can you prove to franchisees that they’ve made the right choice saddling up with you?
This vision won’t only help you figure out how to make the franchise work, it will motivate all your franchisees to work in the same directions and towards the same goal. A solid plan for the future is an underrated necessity for a successful franchise.
Develop an open line of communication
Developing an open line of communication between yourself and your franchisees is crucial to the success of the whole franchise. Then, use these channels to:
- Spread the mission of the business;
- Translate that mission into practical actions;
- Explain any restructures;
- Introduce new processes;
- And inform them of marketing campaigns.
You also want this line of communication open so you can receive any ideas and feedback from your franchisees, as well as keep you informed of their progress.
Establish a strong system
Building a franchise system that is strong and replicable is the key to its success. Whatever system you build has to be able to handle the highs and lows of a business cycle.
If you want to get as many franchisees onboard as possible, you need to give them a structure they can invest in. It needs to be profitable, easy to sell on, and have a reliable support network to help the franchisees succeed.
You also need to provide manuals and training to make sure the franchisees know how to implement your new model. Also, implementing marketing campaigns they can use to promote themselves is also important.
Getting as many franchisees on board is obviously the goal, but there’s no need to rush. Take things slow, make sure each new franchisee knows everything they need to, is trained to a high standard, and that there are support structures in place before taking the next business on.
When it comes to setting up contracts with franchisees, try and make it beneficial for all parties. The last thing you can is to be embroiled in business and contract disputes that waste time, energy and resources that could be used to grow your franchise.
Build a team
Creating a valuable team is essential for building a franchise system that works. This means head office and the franchisees all working well and all working together.
You have to choose your franchisees wisely, and make sure they’re all good business owners in their own right, as you don’t want to end up running their companies for them. Those franchisees are your team and they need to be up to par.
If you’ve taken on a business owner who isn’t quite up to scratch, you can always mentor them and help them improve. It’s crucial that each franchisee is as good as the next if you don’t want the cashflow of one relying on a more successful franchise.
So, are Franchises a Good Idea?
In this post, we’ve managed to cover what franchises are, why you may or may not want to set one up, and shared some tips on building a franchise.
Growing your business, the natural way by buying property in new locations and setting up new businesses there under your name has its own benefits. The main difference between that approach and franchising is the amount of time it takes to train business leaders, learn about your new location, and set up the property.
Franchising is a quick and easy way to grow your business and help out independent businesses who need strong branding and support. Good luck building your business into a successful franchise!