Can you “prove” that your business is ready for franchising growth?
You have a business and it is going great guns, so that must mean it is well placed to be expanded via franchising, right?
Well, maybe! Having a successful ‘one-off’ business is no guarantee to this success automatically being replicated on a greater scale through the franchising model.
In order to set solid foundations for a future in franchising, you must first aim to test whether your business is ‘proven’ for this growth path – not only to yourself but also to potential franchisees. The problem with using the word proven in this context is that it is subjective, i.e. what’s proven to you, may not be proven to someone else.
How then can you go about demonstrating, to yourself and your future stakeholders, that the viability of your business for franchising is proven?
Proven does not mean risk-free. There is no 100 per cent way of guaranteeing success for any small business. Risk is inherent in all business, franchising included, as there are many factors that even as a franchisor you won’t be able to control.
It is mitigating the risk through trial, duplication, and replication of systems that can make all the difference between a robust franchise network and a one-off business that depends on the owner to be everything to everyone at once. How can you show that your business can be successfully duplicated within a franchise system? As a prospective franchisor, if all that you have to point to is your existing business and a claim that ‘of course it will work’ for someone else, then this is highly unlikely to meet anyone’s definition of a proven system, and your franchising growth dreams will not progress very far at all.
The key to successful and sustainable franchising, for all parties involved, is reparation. For prospective franchisors, this means taking a systematic, long-term approach to proving, as much as possible, that franchising is indeed the right growth path for your business.
Here are some tips that will help in this process:
• Longevity – you must have operated your business for a reasonable length of time (at least four years) to show that it can survive seasonal variations in demand and is based on a sustainable concept, not just a passing fad.
• Profitability – profits are important, if you have an unprofitable business then forget about franchising it. Don’t forget that your potential franchisees will also be paying you a royalty and various levies. Will the existing revenue in the business withstand at least another 10 per cent take-out, and still deliver a reasonable profit level for your franchisees?
• The Market – a thorough understanding of the market in which you operate. Be totally across your current and potential competitors and the viability of expansion. Don’t forget to include some ‘what ifs’ in your competitor review. What if an unforeseen ‘category killer’ enters your market? Or a major digital disruption or technology breakthrough is imminent?
• Documentation – If your systems and processes are not documented then they are not a system. They must be able to be consistently replicated to achieve scalability. You might be able to show someone what to do, but if there are no documents to refer back to, how can you expect them to follow what you have shown them, consistently when you are not there? How will you, as a franchisor, ensure that your franchisees and their businesses are compliant? If you can’t ensure compliance across your network, then you are putting your brand and ability to sell
the next franchise at risk.
• Duplication – this is a very important step. If you do not open your own additional outlets, how do you expect anyone to believe your claims that your concept is proven? Through duplication you will learn more about the transferability of your concept and the systems needed to support a growing network. Prospective franchisors should open at least one or two additional outlets, ideally in different locations with different demographics. If you can successfully duplicate profitable outlets, this is a positive sign for a successful franchising network, and these may become your training centres or the first to be offered for sale to future franchisees.
This is just a snapshot of the preparatory work required to successfully franchise a business. There’s a big gap in resources when you are thinking about becoming a franchisor. Our advice is to start doing your own due diligence on the suitability of your business for franchising, before you make the leap into engaging consultants or drawing up disclosure documents and the like.
Empower your approach to business expansion so that you are sure this is the growth strategy best suited to you and your business. Research the types of decisions that you are going to have to make, before you are asked to make them on the fly.
It is for this reason that Griffith University’s Asia-Pacific Centre for Franchising Excellence has specifically developed the How to Franchise eClasses so that perspective franchisors can educate themselves on everything involved, before investing too much time and money, and be better prepared for the franchising journey ahead.
Find out more about due diligence for Franchisors on the Business Franchise website at www.businessfranchiseaustralia.com.au/franchise-your-business.