How to Avoid the Pitfalls of Franchising

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.

You Should Franchise Your Business - The Customer Said

Interestingly enough, if you've owned a successful small business for a number of years, and you often have a line going out the door, then more than one customer has said to you that; you should franchise your business. You've also probably had people come up to you and say; if you ever decide to franchise your business, I want to buy the first one. The customers might think they are paying you a compliment, and doing you a favor by offering this advice, but let me tell you that franchising is no easy game. It's much different than running a successful small business, it involves so many more details, and lots of legal work too.

You see, I am a former franchisor founder, operating in the vehicle cleaning business, and I can tell you this; I've worked harder in my lifetime than anyone else I've ever met. I can remember times running my franchising company working 19 hours a day with no days off for months on end, in fact, on average I work 15 to 17 hours every single day with no days off for 27 years. Do you think you have what it takes to do that? If not you may want to consider some other line of work.

Most people believe that franchisors make a ton of money, and while it is a good revenue generating business, it also takes a lot of money to make money, and you could easily sink your life savings into your business, and have more than a million invested before it starts to return the kind of profits that franchising companies are known for.

Further, when you run your own small business you must deal with all the local rules and regulations at the city and county level, sometimes state as well, along with the various federal regulations. Imagine doing business in 23 states serving some 450 cities in four countries. That's what I had to do, and imagine trying to keep track of all the local ordinances, rules and regulations in all those different places? It is a figgin-nightmare, the only difference is it is real, you can't wake up from it.

Do I regret franchisee my company, oh hell no, it was a hell of a ride, like strapping yourself to a rocket. Recently, someone set the record in skydiving, he jumped out of a balloon capsule from 128,000 feet, any accelerated to 1.24 times the speed of sound. He probably couldn't even take his helmet off from a spacesuit to kiss the ground due to the ice which had formed, and the changes in temperature preventing him from unlocking it. Nevertheless, I bet he didn't want to kiss the ground when it was all over.

Are you sure you want to be a franchisor founder? I hope you have fun takes. Please consider all this and think on it.

Is Franchising The Answer to a Small Business Recovery In The US?

Not long ago, I was discussing with someone the Republican presidential ticket this year, going up against Barack Obama in November of 2012. I recalled that there was a candidate who had worked in the franchising industry, a pizza man, prior to his retirement and indeed had also done a stint with the restaurant industry association. Although he bowed out of the Republican presidential nominee race early on, I always thought to myself that he might be a good person to run the Small Business Administration. Why you ask?

It's simple, because if we are going to have an economic recovery in the United States, it's going to have to be done at the small business level. That is to say we need to get these little companies generating revenue, and hiring more people. This will soak up the unemployment numbers, and bring things back into a positive state. It seems to me that franchising could go a long way to helping a small business recovery in the United States. You see, there are over a half a million franchises in the US, and just think of every one of them hired three people? That would sure be a positive shot in the arm for our economy wouldn't it?

Well, it seems we are going the other way because we are making it more difficult for franchisors to compete in the marketplace. We are making it harder for them to get loans so new franchisees can start, and we are making it more difficult for franchising companies to make sales due to all the onerous disclosure documents which are required. As a former franchisor I can tell you that our disclosure documents were over 260 pages long, but if you go to Mexico only 10 pages are required. There's no reason we couldn't make a very short form, and leave that as the only real requirement.

It is amazing to me all the bureaucracy and forms that we have to fill out for just about anything in our civilization or society. Yes, I understand much of it is because of lawyers, but then the government gets involved and makes greater regulations. Look how much it takes to get a home loan these days, buy a house, or even make a deal with your real estate agent to sell a home? Look at all that is required when you buy a new car, what is all the writing on all those pages that you sign your name to? Does anyone really know and if they don't why is it required?

If we make franchising easier the United States, there would be more small businesses created, more jobs created, more tax revenue generated, and as far as I'm concerned that's just good for business, and it's very good for our economy and economic recovery. We should do everything we can to help the franchising industry help itself. I'm not talking about giving away guaranteed loans, grants, or gifts from government - no crony capitalism is required. We just need to move the debris and minutia out of the way in the franchising sector. Please consider all this and think on it.

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Unravel the Intricacies of Franchise Law With a Reputed Law Firm

Franchise law is a complex legal framework, for which the services of attorneys are required. Reputed law firms are capable of representing both small as well as large companies. These firms also help clients in making the best franchising decisions for their businesses.

It is true that franchising makes a business grow, but when to take the franchising decision is of critical importance. Once the decision has been taken, there are some questions that need to be answered: how will one's business be better than competition, are managers required in different locations, can the business be described in the form of an operating manual, and will the business be profitable for both the franchiser and the franchisee.

Franchisers, franchisees and area developers can be represented by law offices. An experienced law office will help a franchiser to go over an accurate franchise agreement and franchise disclosure document. Franchise registrations are also taken care of, and the scope of the franchise law is explained to the clients.

One way to enter a new market is to set up the functioning business with a subsidiary or a single franchisee. After a period of time, if the single franchisee displays ability to succeed in the entire market, it can be declared as the master franchisee.

International franchising may be holding a great future for entrepreneurs, but certain considerations need to be kept in mind before making a decision to do so. Some of the advantages are: labor is cheaper in many countries, franchisees are heavily in demand, and a lot of money is involved. What makes the process challenging is that each country comes with its own culture and set of regulations to be followed, and each target audience has its own preferences and tastes. So it makes a lot of sense to partner with a local company which is aware of the culture, after conducting a research.

Due to the lucrativeness of foreign markets, many franchisers are interested to go international. The growth that has been registered by many franchisers and franchisees previously provides tremendous incentive for new players to become popular throughout the world. However, one must consider the pros and cons as mentioned above, before taking the final plunge.

Franchising is beneficial both for the franchiser and franchisee. The franchiser is able to expand his own business by receiving royalty payments and the franchisee can use the strategies of a tested business model. Startup businesses have been more successful when in partnership with franchisers. However, care needs to be taken to make sure that the franchise disclosure document is signed as per legal requirements, under the guidance of a reputed law firm.

Franchising Opportunity

In December 1827 the American author, Charles A Goodrich coined the motto which is now popularly quoted as "a place for everything and everything in its place". In doing so he was merely drawing on the pre-existing idea that there is a natural order and size for everything and to go against that order is to invite trouble. So as we search the universe for Goldilocks planets which are neither too hot nor too cold and therefore may sustain life, we hear tales of dinosaurs being too big for their own good and understand that giant vegetables grown for competition may not be the best to eat.

The same is true in business. The BBC television programme Dragon's Den regularly features individuals who are commended for their idea but rejected as the business is not scalable. In fact, the commonest causes of business failure include expanding a business too fast or attempting to expand beyond a natural size. The step up from individual entrepreneur to multi-site business is not an easy one and many fall along the way.

When considering business expansion one option which is far too frequently ignored is that of franchising. Bringing your business or idea to the market place by way of a franchise can enable the business and brand to expand rapidly without the attendant cost and staffing implications. Although the British Franchise Association (BFA) warns that not all businesses are suitable for franchise, the franchise model does work for a far wider range of business types than mere coffee houses or stationary providers.

Successful business franchises are based upon a robust business model supported by a comprehensive franchise contract. Whilst franchising brings many benefits, the franchisor is partially handing over their reputation and their brand to others and this can have implications for the business as a whole. In a global 24/7 marketplace the actions of one franchisee will reflect on the franchisor as well as the other franchisees and therefore the franchise contract needs to cover every conceivable eventuality.

This means that a franchise agreement cannot be written on the back of an envelope but will require specialist franchise contract review advice from a franchise solicitor. In fact, those who specialise in franchise agreement reviews need to not only have a deep understanding of the law as it applies to franchises but also a strong grounding in business processes. This enables franchise solicitors to take account of all the nuances of a particular franchise; and those looking to set up a franchise or become a franchisee ignore specialist franchise contract advice at their peril.

Whilst this may seem like a doom laden warning, the truth is that it is only when something goes wrong that the true nature of an enterprise is revealed. Good franchise agreements are as much designed to pre-empt trouble as they are to act as a rule book. So, potential franchisors should take specialist finance contract advice and potential franchisees should also commission a franchise solicitor to undertake a franchise contract review.

These franchise agreement reviews are vital in ensuring that the franchisee is fully aware of their obligations under the franchise contract.

From a franchisor's viewpoint the potential to be gained by way of rapid business expansion, income growth and the spread of risk is a heady mix. Similarly a potential franchisee can easily succumb to the temptation of an existing business model, strong brand and business support from the franchisor. But unless an in depth franchise agreement review has taken place both parties may be simply stepping into the franchise arrangement with their eyes shut.

Perhaps that is why franchise solicitors are often asked to mediate or advise on franchise disputes. These often arise when the original franchise agreement review has not ensured that franchisor or franchisee fully understand the nature of their obligations under the finance contract. Franchise contract reviews are also required on an ongoing basis to ensure that the franchise contract continues to meet the requirements of an ever-changing business world.

Whilst there are those in the business world who are content to remain a "one man band"; for many the drive to expand, to build, to secure is part of their business DNA. Those who take the franchise route have the potential to successfully take their business far beyond the natural size for a single outlet. By spreading risk, injecting capital from franchisees, taking advantage of bulk buy-discounts yet minimising staffing levels the successful franchise has the potential to be a global enterprise. So maybe we need to modify Goodrich's motto to read ""a place for everything and everything in its place, unless you franchise".