The most commonly asked question that we receive is – what are the steps in setting up a franchise? The short answer is that you will need a good team of people to help you with each of the steps set out below. The first step is deciding if you should move ahead with the idea at all.
Step 1 – Determine if your business is ready for franchising:
• Is the business well established?
• Is there potential for expansion?
• The business needs to be thoroughly market tested and proven to be successful.
• Is the business adequately differentiated from its competitors?
• Are systems in place to allow it to be duplicated? Each Franchised business can’t rely on you personally in order to operate successfully.
• Is your business profitable?
• Can the average Franchisee make a good return on their investment after paying Franchise fees
Step 2 – Determine if franchising is what you want. Does it help you achieve your goals? Are you the right person for the job?
Step 3 – Ensure that your intellectual property is adequately protected. Register trademarks if required. Establish the correct entities for proper protection in this regard including separate entities to hold trademarks, enter franchise agreements, enter leases etc.
Step 4 – Document your operating procedure (i.e. Write your operations manual). Use the process to continue to refine your procedures. Are you using best practice? What can be improved? You do not want your franchisees to repeat mistakes made by you as you built your own business?
Step 5 – Work with your advisers to prepare relevant documentation including Franchise Agreements, Disclosure Documents, Prior Representations Deeds and Security documentation, if applicable. You will need to consider how your system will operate. Consider, for example, the following:
The Franchise Fee:
• What fees will you charge (Initial fee? Ongoing Fees? Promotions Levy?)
• How will you calculate your royalty? Flat or percentage rate or a combination?
Territory and Term:
• How long will you offer the Franchise for?
• Will you give an option to renew? Remember people need sufficient time in the business to be able to make their money back
• Will you offer exclusive territory?
• Will you be permitted to operate in a similar business within the territory?
Training:
• What will you provide?
• Who will do the training?
• Where will the training take place?
• How much training is needed for your franchisee to be in a position to operate the business successfully?
• At whose cost will the training be provided?
• Stock control and Performance Criteria.
• What sort of control will you maintain over stock?
• Will you establish performance criteria?
Step 6 – Develop your marketing campaign. Who will you recruit? How do you determine the best franchisee? Ensure that you speak with other Franchisors in relation to recruitment of Franchisees and read available information. Don’t rush the recruitment process. Quality Franchisees are vital particularly in the early phase of the System Development.
Step 7 – Start operating your Franchise and keep operating your pilot business. Continually look for improvements in the way you operate your business and in the operations of the Franchise System.
Remember – it’s a process!
If you need some help contact J J Riba & Company
