Canadian Franchising: Duplicating Growth
If you are a business owner who has developed a profitable business, perhaps with multiple locations, and you are seriously considering alternative approaches to generating growth, then this information is for you: franchising can provide you with a distribution channel to build brand identity, maintain your competitive advantage and attain market dominance quickly.
Developing the franchise is a totally separate business from the sale of goods or services that your business provides to its customers. When you develop a franchise, you are creating a business to sell the operating business you have developed - over and over again.
Many elements are fundamental to building a successful franchise, but here are the most important ones:
A good concept.
A good system.
A dedicated management team.
If you work to make them wealthy and happy, you will be handsomely rewarded with higher income and fewer problems.
Once you have these ingredients and have decided to franchise, you will need a franchise developer to put together your systems and package them for sale to franchisees. You will want someone who will lead you through all the steps and educate you as to why decisions are made and actions are taken, so that you and your staff will be knowledgeable and not dependent on outside consultants in the future.
Next, you will need to perform a financial analysis to see if you will make money. How will you know what to charge for an initial fee and the royalties? How do you know how much support you will be able to afford? These questions must be answered through a careful computing of costs for setting up the new franchisee, as well as training, support and other necessary services, such as accounting and quality control. Franchising is not a "get rich quick" scheme - in most situations it will be several years before you see any profits.
Once your systems are defined and you have all the basic functions ready - systems, manuals, operations, quality control - it is time to hire an experienced franchise lawyer. Your franchise consultant will write instructions for the lawyer, who will write the disclosure document or, if you plan to offer in the US, the Uniform Franchise Offering Circular (UFOC), to fit your company (rather than you organizing your company to fit the lawyer's boilerplate document). The UFOC is the required disclosure document in most states; the remaining have state-specific requirements. In Canada, Alberta has had legis-lation regulating franchise sales disclosure for several years now. Ontario passed a new franchise act in 2000 and its regulations came into effect in January 2001.
The shift from a multi-unit corporate-owned environment to a franchisor environment requires a significant change in management focus. The old business of providing the goods and services on which you have built your customer base is delegated down to the franchisees for whom you now provide support. Your new, de-manding and ultimately rewarding focus becomes the sale of the franchises. You want to develop systems that can be taught quickly and effectively to franchisees; develop standards that provide a common ook, product and service level across your many locations; and establish quality controls that can be easily managed and enforced. You will develop new products and forge new relationships with suppliers and customers.
Planning will take on many new dimensions as you develop a process that properly focuses the franchisees on their annual workflow and integrates them into your longer goals and strategies. Your head office staffing and support structure will also change dramatically as some functions disappear entirely, delegated to the franchisees, and others require increased resources.
And what about your franchisees? Will your franchise help them to get the business up and running quickly and without error? Will your franchisees make at least $50,000 or more a year? If not, selling the franchise will be difficult. The single most important attribute that persuades people to buy a franchise is that the other franchisees are making considerable money.
If you can deliver that ability time and time again, you will have a winning franchise company.
Each potential purchaser of your franchise will talk with at least three other franchisees who will tell your candidate the truth about everything, including their income. If your franchisees are happy, you will make the sale; if your franchisees are complaining, you will not. If you ensure that your systems and assistance are what your franchisees expect, your franchise sales will continue to be strong.
You will want to identify the type of person who will buy your franchise, and make sure that person will have enough money to make the purchase. Once you develop the purchaser profile, it is beneficial to assess other franchise opportunities to which your preferred purchaser will compare you. Such factors must be considered before you go to the trouble and expense of becoming a franchisor.
So, first things first. Make sure your business is strong, duplicable, and that the future looks bright. Then set up your systems in annual form, position your company for franchising, position your sale toward the right person, and set up your training.
This is a lot of information to digest, but we hope it helps. Franchising can be one of the most successful ways to deliver growth to a company.
Written by Cheri Carroll and Rob Sproule
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