You’ve got the loyal customers, demand for your product is growing, sales are up. Could now be a good time to franchise? After all, you’ve grown your business from startup to profitable business. Maybe you’ve even opened a second location.
Not so fast there, eager business beaver.
If you’re looking to expand your business and boost your profits, franchising is a great option, but it’s also a strategy that requires careful planning to get right.
Before you start thinking about replicating your business, you need to make sure that your business model is up to scratch. That means putting some thought, and a lot of work, into creating a business with strong marketing and bulletproof processes.
After all, a failure to plan is a plan to fail. So don't go the way of the Pie Faces of the world, and make sure you set your business up for successful expansion.
Here are four things to think about before you decide to franchise your business.
Define, and protect, your brand
To franchise, you need franchisees. That means you need to be able to sell your business.
What makes a business attractive to franchisees? Well, lots of things. But one of the big ones is your brand. Your brand is one of your most valuable assets. And it includes more than your tagline and the colours you use in your marketing materials (although that’s important too!).
Your brand encompasses everything about your business - your business model, the value you provide your customers, your management team, the concept behind your business, your credibility, the way you interact with your customers, your culture. All of these factors contribute to your business’s brand, and it’s perceived value.
On the subject of brand, it’s also important to remember that when you franchise, you risk losing control of this very valuable asset. If you’ve worked hard to build your brand, you don’t want to risk it all by handing it over to franchisees that won’t maintain it.
That’s why it’s important to, firstly, build and establish a strong brand that you understand and can articulate to investors and franchisees, and secondly, to protect this brand with comprehensive and clear brand guidelines that stipulate exactly how your brand should be represented.
Well-documented brand guidelines, informed by a comprehensive brand and content strategy, will help you clearly define your brand, and guide clear and consistent messaging across all franchises to ensure you’re speaking to your customers with one voice. Take it from Amazon: a single social media post can do some serious damage to your brand’s reputation!
Get in touch with BlueRock’s Brand & Acquisition team to define your brand and establish a comprehensive brand and content strategy.
Hire a lawyer
Before you enter into a franchise agreement, you’ll need to lawyer up. Franchising is complex, and there’s a whole body of law that specifically covers how franchise relationships are governed.
The ACCC’s franchising code of conduct regulates how franchisors and franchisees should behave, and includes strict regulations around disclosure requirements, good faith obligations, dispute resolution, cooling-off periods and procedures for ending a franchise.
Breaches of the code will be investigated by the ACCC and could result in court-ordered financial penalties.
Given the recent Fairness in Franchising Inquiry, a crack-down on how franchisors conduct their relationships with franchisees could be on the horizon. If the recommendations in the inquiry are adopted, they’ll have a significant impact on the industry and franchisors and franchisees operating within it.
We know small business-owners wear multiple hats in their business, but there are a few things you should never take on alone: night swimming, monopoly, weight lifting… and your own legal work.
An expert franchise lawyer will guide you through all the legal requirements and franchisor obligations you need to be on top of. Make sure you’re complying with all the legal obligations of a franchisor by bringing in the big guns.
Get the location right
Picking the right locations for your franchises will have a huge impact on the likelihood that they’ll be successful. It won’t matter how amazing your business is, if the location isn’t right.
Research, and lots of it, is key here.
First, you need to understand your target customers: who are they and where do they spend their time?
Secondly, do some research on the location: is it easy to access? Will foot traffic drive customers to your store? What’s the competition like? Are there any construction plans in the near future?
You also need to consider the costs of leasing property in different locations. Negotiating a lease can be complex, so it’s always a good idea to get expert legal advice before entering into any agreements.
There’s a lot to consider.
Fortunately, there are tools to make the decision a little easier. That’s because a new wave of PropTech companies are changing the way that the property industry make decisions.
Propella.ai, a BlueRock-affiliated PropTech company that combines property expertise with geospatial data, can provide data-based recommendations on optimal site locations. Using AI-powered tools, Propella.ai can assess your location requirements to help you pinpoint an ideal site that meets all your criteria.
Build some projections
While forecasts and spreadsheets aren’t the flashiest aspect of your new franchise, they provide the platform from which your business will grow and will undoubtedly help avoid financial headaches down the track.
We know that dreams of that shiny new car may tempt you into focussing on the revenues that your franchise will be raking in, but let’s forget about that car for now and focus on nailing down the costs of setting up and running a new business.
There is a myriad of variables that make forecasting revenues (especially for a new franchise) an unpredictable and difficult exercise. This means it’s a good bet to start with expenses, collating as much precious data as you can to paint a picture of how much your business will cost. Unexpected outlays often begin to pile up when launching a new franchise, so it’s important to be realistic and allow for a little wiggle room in your projections. This doesn’t mean your goals shouldn’t be ambitious. Dare to dream people!
As an entrepreneurial advisory firm, BlueRock loves watching small and medium businesses grow. We know that ratios, profits and cash flows can be a daunting prospect, our awesome accounting division are experts in helping franchises set and achieve their goals for growth, so give them a holler to begin making your business dreams come true!