Tasha is one of Australia’s bright young entrepreneurs. She quit her job five years ago and started up her own business producing healthy food lines using only local ingredients. She opened a shop in a suburban high street, set up a kitchen at the rear and sold take-out lunches and dinners using her own recipes. Word spread quickly and she had a thriving daily trade. She employed kitchen and front-of-house staff, leaving her time to work on her business. She made good use of social media and soon had an online ordering system which boosted sales even further. One day one of her key staff members said, “Why don’t you open a second shop in a nearby suburb, and how about you let me manage it?”
What a great idea, she thought. I’ll be expanding my business, and I’ll have a trusted manager in place to operate it for me. Quickly the second shop took off and people started asking, “Is this a franchise?”
This got Tasha thinking. I know my business is successful and I’ve shown I can teach others to operate and manage it. I think franchising will be a great way to expand my business further. So where do I start? I’ll go see a franchising lawyer and have them draw up a franchise agreement and then I’ll start advertising my new franchise.
A week later, Tasha was ushered in the lawyer’s office for an initial chat. “Sure, we can draw up a franchise agreement for you”, the lawyer said. “Let me start by asking you a few questions. Do you have good accounting records? What is your franchise fee to be? Will you be charging a royalty? And how are you going to calculate that? Will your franchisees be buying all their ingredients from you? And at what prices and margins? You have store operating systems, right? Have you documented them into a set of manuals? How are you going to train your new franchisees? And for how long? Will you be charging your new franchisees a training fee? And how will you calculate that? Your second shop manger is someone known and trusted by you, how will you select and screen people who are not known to you, when they apply to be a franchisee of yours? What support systems will you have in place to make sure your franchisees will be successful? And what about territories? How many and what size …?”
“Whoa ….!” says Tasha. I hadn’t thought of any of this. I just assumed that because my business was successful and growing, that I could just advertise for franchisees, give them a franchise agreement and we’d be away. I don’t have answers for any of these. And even the questions I do know about, I have no way of presenting and communicating my franchise offer and opportunity to new prospective franchisees.
Her lawyer then suggested that before she started spending money on legal documents she pause and seek some professional advice from a specialist franchise consultant. A franchise consultant will start by suggesting she prepare a business plan specifically to grow her business using franchising as the means of expansion. A consultant will work out the financial viability of each new outlet when it is under franchisee ownership, making sure the key financial parameters are known and achievable. Then they will develop an expansion model that shows how many franchises it will take before Tasha’s business starts to become financially viable. Remember that by franchising the business, Tasha is passing each outlet’s profits to the franchisee, and she, as the franchisor, is only making money from franchise fees and royalties, plus whatever she supplies them at wholesale prices. And so on…
Next, a franchise consultant will prepare a suitable franchise opportunity package. Tasha is never going to attract and sign up a franchisee just in a verbal conversation. A prospective franchisee will want to see that Tasha’s business looks professional and stands up to some rigorous scrutiny. After all, they will be making a considerable financial commitment when buying the franchise and will want to see that it all stacks up.
Finally, how is Tasha going to find and recruit franchisees? Franchise recruitment is a highly specialised field of business broking and marketing. How much does she know about the Franchise Code and the regulations that must be followed when offering and selling a franchise? Not much! And certainly not enough to avoid making potentially serious mistakes. Such mistakes can be choosing the wrong type of person as a franchisee. Or not understanding the regulations around selling franchises. Or taking on a new franchisee and then falling short of inducting and supporting them so they are successful. Remember, Tasha’s franchised expansion will only succeed when she picks the best people, sets each one up correctly at the beginning, ensuring each new outlet location is carefully selected. Then supporting each franchisee with launch marketing, ongoing support systems that include training, technology, buying at competitive prices and, just as importantly, using ‘soft’ skills to build a harmonious, happy and prosperous network of owner-operator franchisees – all of whom collectively enhance and build the reputation and customer appeal of the core business.
Yes, franchise lawyers are essential at the early stage. The legal documentation must be correct and tailored to the business being franchised. But the groundwork comes first. And this is where the franchise consultant comes in. Selecting a franchise consultant with real-world experience of building franchise networks will save Tasha, and every other aspiring franchisor, huge amounts of money, energy, trial and error, and time. Plus, a franchise consultant who also recruits franchisees ensures that the new franchise starts off on the right foot and actually achieves the long-term desired outcomes for the newly emerging franchise business.
Don’t be put off, Tasha. Just don’t rush into it thinking all you need to become a franchise brand is a franchise agreement. There’s much more to it than that. Do it right from the beginning and you’ll definitely be the winner.
To find out more about how a full service, one-stop franchise consultant can dramatically enhance your chances of success as a franchise company, call Colin Crawford at WFD Consultant Group Pty Ltd on 0425 838 800, or email ccrawford@franchisedevelopments.com.au
Written by Roger Dickeson