15 steps to setting up a franchise

Sarah Stowe

I am surprised by how many businesses decide to opt for a franchising model with no plan for how to properly achieve it. I see businesses that have tried to do it themselves, engaged a lawyer as a consultant, or just tried a shotgun approach and fired off volleys whenever they see a problem fail miserably.

Let’s start with a franchise consultant who can take an overview of the development of the franchise. 

Franchise consultants are specialists who act like conductors of an orchestra, Their job is bring in (and out) the various instruments as and when required. In our case I say our business is the first violin – needed for strategic network planning, site selection policies and territory planning – and then we pass our work back to the conductor and the client to move to the next steps.

1. Undertake a feasibility study (or just your own due diligence to prove the concept you have can work). I become very concerned when I hear from potential franchisors that they have not opened nor run the business they are planning to franchiseEven major international companies intending to open in Australia can tell me that trialling the concept is up to the master franchisor – and ask if I know anyone with $5m to invest? Most of those are still kicking tyres looking for their dream investor.

2. Understand that the costs to develop a workable franchise system are likely to range from $50,000 to $100,000 and attempting to achieve this more cheaply is a false economy. I am often asked to postpone payment for my companys service, and I remind the client that we are consultants, not a bank.

3. Arrange the writing of your operations manuals. Either do it yourself or work with a professional who will have templates. Don’t limit yourself to thinking only of printed manuals; in today’s digital environment franchisees like to access information online.

4. Strategic network planning. This is thinking in terms of what the network may look like in five or 10 years and the kinds of locations you will need. This investment may save you from expensive mistakes, as there is no cheap reversal in leaving or closing a store. Consider too that if the store you approved turns out to be a disaster you will need to demonstrate the process used to make the decision; lost court cases can be very costly. 

5. Site selection policy – decide what type of stores you are seeking in terms of size, where they sit in terms of impulse or destination purchasing, and how you can instruct other people in what you are looking for. Issues need to be considered include size, traffic (vehicle or pedestrian), visibility, parking, access, local generators (or neighbours).

6. Most service franchises need to grant territories. This is particularly important if you have a central ordering concept where leads come in by phone or computer. Decide what size territories and how many there should be in each main market. Well thought-out territories make it easier to grow your business.

7. Sort out your marketing and make the necessary decisions on who is your potential customer and how to find them. How will you attract them, inform them and entice them to make the call to purchase?

8. Find your first few stores. This can be undertaken internally, or you may want to appoint a professional site finding company which is expert in negotiating with leasing agents and real estate agents.

9. Appoint a law firm to write your disclosure agreements and franchise agreements. This may involve some major decisions as the agreements need to line up with what you are offering a franchisee. Considerations include length of franchise period and options to renew, whether or not the business is territory based, will territories be exclusive or non-exclusive, exclusion zones and many other issues that will govern how you operate in the future.

10. Attract future franchisees. This is crucial to the future of the business so how will this be doneReview the options and decide how much involvement you want in the process of acquiring leads and selecting franchise buyers. You can manage everything yourself, engage help along the way with lead generation or appoint a specialist who will qualify future franchisees on your behalf. Decide on a process to approve franchisees. How will franchise buyers be profiled and interviewed?  

11. Match up an approved franchisee and the desired site. The timing isn’t always right, so decide whether your will keep a franchisee on hold and wait for the right site, or take on a location to run as company-owned until the right franchisee turns up.

12. Fit-outs. Once you have the franchisee and site in place, if you have a retail business where you will need to fit-out the premises. Consider whether you will appoint a company or allow the franchisee to organise the store fitout themselves? Either way controls need to be in place to ensure it meets brand standards, which hopefully are well documented in your operations manuals – step 3.

13. Training – your franchisee now needs to be trained in thsystemEnsure there is a clear training plan (which may or may not feature business skills), and consider whether any of this training will be handled by an external trainer. The better trained and confident the franchisee, the more effective their initial trading period will be.

14. Plan the opening. Many things need to come together at the same time to open successfully. This can include stock, equipment, staff, vehicles and local area marketing.

15. Open the new franchise, and support the franchisee who is probably taking the biggest business decision in their lives. They may need their hand held and that is what field staff and operations teams need to do – even if that is one person also holding the title of franchisor, MD, development manager and chief operations officer.

I can only say to a future franchisor look at these steps and see if you have them covered. And expect potential franchisees to feel comfortable that all these items are covered – before they part with their initial franchisee fee.