Despite the benefits to be obtained by franchising your business, there are some pitfalls to look out for. The most common warning sign is when the Franchisor is under capitalised. Although franchising is great for growing your business through using other people's (franchisees) capital, properly developing and supporting the network requires an investment. Establishing the franchise system, getting legal documentation, implementing the correct corporate structure and protecting intellectual property can all be costly. If this is not done correctly in the first place, it becomes even more expensive in the long term.
Poorly capitalised Franchisors typically under-resource head office and as a result fail to properly support the network. The key is to carefully plan what roles are required and when, and hire according to the support your franchise network will require. Staffing costs for Franchisors form the greatest portion of their overhead costs. If your franchise program has been professionally developed, you will fully understand the financials and know the relationship between the income from royalties and initial fees and your head office support costs. One of the biggest errors is to stretch support staff too thin with a greater number of sites than they can manage. For example, Area Managers (depending on proximity to sites and the nature of the business) should typically have no more than 10-15 stores under their control. Their contribution is otherwise counter-productive and they fail to service franchisees sufficiently.
Intense competition in the franchising industry means properly developing the offer, updating websites, collateral, training programmes and support is paramount to differentiating your franchise. Having a presentable offer greatly assists in attracting quality franchise applicants. The Cupcake Bakery and Ben & Jerry's make the recruitment process an experience which reflects the values of their brand.
Showcasing the brand throughout the recruitment process is important and includes presentations, site visits and product samples. If investment in the promotion of the franchise is limited, it is extremely challenging to attract applicants.
Franchisors will reiterate that their toughest challenge is attracting quality franchisees. To make matters more difficult, if enquiries are not responded to within 24-48 hours, applicants lose interest. Poor feedback reflects badly on the business and an unprofessional recruitment process makes attracting quality applicants much harder. If you are unable to dedicate the time to properly recruit internally, then you will need to invest in a franchise recruitment specialist. These firms typically charge on a success fee basis.
It is a common misconception that complying with the Franchising Code of Conduct is strenuous. The reality is the Code merely seeks to ensure Franchisors are acting appropriately and prospective franchisees are duly informed about entering into the Franchise Agreement. Although possibly seen as a pitfall, the obligations for the Franchisor merely reflect good business practice. Most disputes between parties are usually resolved in mediation, and if the Franchisor acts properly and in line with the Code, franchise disputes are quite uncommon and easily managed.
One of the most common problems for Franchisors and business owners is relinquishing control over certain aspects of their business. This usually stems from the view that 'no-one else can do it like I can'. Although others may not be able to complete tasks to the same standard as the owner, they can typically be completed at an acceptable level, provided you give them the appropriate training. The owner's focus must be on trying to make themselves redundant. This does not mean you leave the business, it means the business is not solely reliant on you and can operate in your absence. Many people find it tough to relinquish certain roles, but the franchise network can not reach its full potential if the owner does not delegate less important tasks.
Franchising your business does not come without risk or potential pitfalls. However, if you are diligent and properly develop the system, the risks can be mitigated. It is prudent to speak with business and legal advisers to prevent potentially costly mistakes.
Poorly capitalised Franchisors typically under-resource head office and as a result fail to properly support the network. The key is to carefully plan what roles are required and when, and hire according to the support your franchise network will require. Staffing costs for Franchisors form the greatest portion of their overhead costs. If your franchise program has been professionally developed, you will fully understand the financials and know the relationship between the income from royalties and initial fees and your head office support costs. One of the biggest errors is to stretch support staff too thin with a greater number of sites than they can manage. For example, Area Managers (depending on proximity to sites and the nature of the business) should typically have no more than 10-15 stores under their control. Their contribution is otherwise counter-productive and they fail to service franchisees sufficiently.
Intense competition in the franchising industry means properly developing the offer, updating websites, collateral, training programmes and support is paramount to differentiating your franchise. Having a presentable offer greatly assists in attracting quality franchise applicants. The Cupcake Bakery and Ben & Jerry's make the recruitment process an experience which reflects the values of their brand.
Showcasing the brand throughout the recruitment process is important and includes presentations, site visits and product samples. If investment in the promotion of the franchise is limited, it is extremely challenging to attract applicants.
Franchisors will reiterate that their toughest challenge is attracting quality franchisees. To make matters more difficult, if enquiries are not responded to within 24-48 hours, applicants lose interest. Poor feedback reflects badly on the business and an unprofessional recruitment process makes attracting quality applicants much harder. If you are unable to dedicate the time to properly recruit internally, then you will need to invest in a franchise recruitment specialist. These firms typically charge on a success fee basis.
It is a common misconception that complying with the Franchising Code of Conduct is strenuous. The reality is the Code merely seeks to ensure Franchisors are acting appropriately and prospective franchisees are duly informed about entering into the Franchise Agreement. Although possibly seen as a pitfall, the obligations for the Franchisor merely reflect good business practice. Most disputes between parties are usually resolved in mediation, and if the Franchisor acts properly and in line with the Code, franchise disputes are quite uncommon and easily managed.
One of the most common problems for Franchisors and business owners is relinquishing control over certain aspects of their business. This usually stems from the view that 'no-one else can do it like I can'. Although others may not be able to complete tasks to the same standard as the owner, they can typically be completed at an acceptable level, provided you give them the appropriate training. The owner's focus must be on trying to make themselves redundant. This does not mean you leave the business, it means the business is not solely reliant on you and can operate in your absence. Many people find it tough to relinquish certain roles, but the franchise network can not reach its full potential if the owner does not delegate less important tasks.
Franchising your business does not come without risk or potential pitfalls. However, if you are diligent and properly develop the system, the risks can be mitigated. It is prudent to speak with business and legal advisers to prevent potentially costly mistakes.
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