So you want to franchise your business

So your business is already successful and you have pretty much got all the processes that makes the business tic down to a T. You've realized that in your industry, as long as you are doing the right things in the right way your idea is pretty much a banker in any area or city where it may start up in. So there seems to be plenty of opportunity to replicate your business plan, but there is only one of you. Plus of course growing your business very quickly can be extremely expensive you will probably need plenty more business finance. Well the option that many entrepreneurs in your shoes choose to franchise their businesses.

But franchising your business can be extremely daunting and certainly is not for the faint hearted. Of course in the log term he returns can be extremely rewarding and pretty much set you up for life if yo had the right idea to start with. Think of some of the more well known franchises in South Africa. Companies which have lately sprung up in every tow and city in the country almost as by magic overnight. I can ensure you that plenty of hard work, cleaver marketing and well thought out business planning went into the process.

Some of the steps that you can take once you have decided to create a franchise are:


1 Determine your fees. Franchisers typically earn two fees; the initial franchise fee and royalty fees. The initial franchise fee is a lump sum paid to the franchiser to start the franchise. Royalties are ongoing fees paid to the franchiser that are typically a percentage of gross revenue.

2 Set your advertising requirements. Every franchisee will need to advertise his own business. Franchisers will typically spell out specific advertising budgets for their new franchisees to follow.

3 Meet with an attorney to draft a franchise circular and franchise agreement. A franchise circular is the document required by the FTC that details the initial offering of a franchise. The circular and franchise agreement are typically presented together as the entire franchise contract.

4 Advertise your franchise. Your local classifieds are a great resource for advertising your new business opportunity.

5 Interview potential franchisees. You will be working closely with your new franchisees; be sure to conduct thorough interviews so you hire the right people to work with you.

Furthermore there are a number of other ideas that can help you with creating franchisee out of your business.

Idea #1: Make your partners profitable.
This first Idea sounds easy, but it often gets obscured by the economic pressures you will begin to feel preparing your financial projections.  First and foremost, your concept must allow your franchisees to make a significant profit.  The more the better.

Yes, a unique, exciting concept is helpful in attracting attention and selling franchises, but the business process and procedures, both operations and marketing, must give your future business partners (franchisees) the opportunity to be successful financially.  The more successful they can be, the more successful your franchise company will become.  If you maintain focus on this Idea, many of your other challenges will become much smaller.

Idea #2: Have a great answer for the question, “What have you done for me lately?”
Creating ongoing value is critical for a successful franchise relationship.  Once you have trained your franchisees and helped them establish their businesses, the value the franchisor contributes to their future success will diminish with time, at least conceptually.  Are your recipes unique and always changing? Does your scheduling system make your franchisees more efficient and profitable? Is your marketing process effective and inexpensive? Is your budgeting software critical to profitable projects? Does your real estate department help find great locations? These and other questions are ones franchisees will ask.

While a strong franchise agreement will protect the franchisor, the objective is to create a win-win relationship, and to continually innovate to make your business, service, marketing and products better.

Idea #3: Quit or hire.
Keep in mind you are embarking on an entirely new business endeavor in which you have no practical experience: franchising.  You are no longer running your business and training others how to do the same; you are the CEO of what you hope will become a successful national franchise company.

I’ve seen many companies fail and wind up entangled in the legal system because they never make the full commitment to their franchise company.  Hiring a franchise development company to create marketing and sales documents and prepare your Federal Disclosure Document is enough to help you sell a couple of franchisees.  But if you want to become a meaningful and successful company, you have to support your earliest partners and make sure they are successful.

Christian Faulconer [2], CEO of Franchise Foundry [3], offers some good advice here: Remember, if you decide to build a franchise system around your successful business, it’s like starting a second business. Selling your products or services to your customers will still require significant time and effort, but now you also have to find time to build the franchising infrastructure and market and sell your franchise opportunity. It can seem like you are running two separate businesses, and the demands can become overwhelming without the right partners.

Keeping your current full-time job as president of your business and then working in your startup franchise company almost never works out.  Consultants don’t cut it, either.  Make a commitment and either quit your job as president or hire someone to run the franchise business, but recognize you probably cannot be successful at both jobs at the same time.

Idea #4:  Raise capital.
There are two reasons for this sacred requirement.  First, it is a great reality check and screening mechanism.  When you begin to talk with others, friends, customers and especially franchise consultants, you’ll hear only positive feedback.  If you want to really hear the truth, ask for a check.

Consultants will tell you the idea is a sure success because they have a hammer and you are the nail.  Friends want to support you and it is always easier to praise and encourage than provide constructive feedback. Your customers already love your service, so they are not the best ones to offer feedback on the viability of national expansion.

Kert Gennings [4] is the COO of Boardwalk Fresh Burgers and Fries [5] and has grown two large food-service franchise companies. He offers this thought: “Preparing a formal business plan for converting your company into a franchise company is a very enlightening exercise as it will help you crystallize your thinking.  Once complete, use that document to raise the money you will surely need to have a fair chance at success.  If you cannot raise the money, listen to what the marketplace is telling you.  Not that you have a bad business, but that perhaps it is not ready for national expansion.”

Secondly, you will need the money you raise to help with marketing, sales, franchise support, registration in states that require it, and hiring a person to help run your old or new business (see point 3).

Idea #5:  You must have a great selling process (selling is service and vice-versa).
You must have a process to sell your franchise to people you do not know.  Ninety-five percent of your customers who tell you they are interested in becoming a franchisee will never write you a check.  And even if all of them do, it is not enough to create a viable business.  You need to sell to people you do not know. All successful sales are the natural outcome of a successful process.  If you want a great example of an automated process, you can visit Process Peak [6].

Keep in mind, your initial franchisees will be early adopter personalities, risk takers.  They will become franchisees because they like ground-floor opportunities and are easier to sell based on a concept and an opportunity.  However, when you update your FDD [7], you are required to list your current franchisees (with contact info).  Those people will become a critical part of your sales process weather you like it or not.  The key to your long term-success is how happy you make those early franchisees, and if you are cutting corners to save money or because you are not committed to the idea of franchising your business, their negative comments to prospective franchisees will really hurt future sales.

Keep in mind that franchising is a heavily regulated industry. The IFA [8]has developed a process for selling franchises called FranGuard [9]. Your sales team should be familiar with that process and the steps you need to take to protect your system as you sell franchises.

Becoming the next great American franchise is a worthy goal, but there are many challenges along the way.  Make sure you’ve done all of your research and identify partners who are truly vested in your future success.


Self-Funding Pitfalls and How to Avoid Them

If you’re determined to start your own business, but you’re business plan has been turned down by everyone from banks to angel investors, then there’s still one business funding option open to you: self-funding.

Self-funding is usually the last business funding option people choose, because let’s face it, it’s the hardest one! However, if nothing else is working, and you know you’re onto a great idea, it’s worth the effort. 

In this article, we look at some of the more common (although often ignored) pitfalls of self-funding your business, and how you can avoid them.

Not Creating a Separate Legal Entity

When you get funding from an external source, whether it’s a bank or a venture capital firm, one of the primary criteria is usually that your company is a separate legal entity. There are many reasons for this, but one of the biggest is that it ensures that there is limited risk involved, for your financiers, and that your personal finances are clearly separated from your company’s.

When you decide to self-fund your business, you might choose to skip this step, – after all, you’re not getting business funding per se, you’re bootstrapping, right?

However, you should remember that self-funding is one of the hardest business funding methods to succeed at, and if you haven’t protected your personal assets, by creating a separate legal entity, in the form of a registered company, if your idea doesn’t work, you stand to lose everything – including your personal assets!

Bottom line? Make registering your company a priority, and don’t do business until you have.

Being Overly Ambitious

It’s completely natural to be enthusiastic and excited about your business. However, if you haven’t found external business funding, you’re going to have to tone down that excitement, and take it slow!

When your business funding comes out of your own pocket, you’re going to need to be even more careful. That means cutting your overheads to the bone, starting as small as possible and expanding cautiously.

This is especially true if you are getting your business funding from your home loan or your retirement fund – the more money you can keep in the bank, while you start and grow your business, the better.

Treating It As Your Money

When you get business funding from an outside investor, you will have to keep careful records of how it is spent, and on what. You won’t be able to use any of the business funding you get for personal needs, and you’ll have to account for every cent.

When you choose the self-funding route, it’s easy to fall into the trap of not keeping track as carefully. You might take money out of your home equity, or your savings, and you might decide to spend some of it on personal items. Before you know it, your capital is gone, and your business is not earning enough to keep you afloat!

It’s very important to treat self-funding as you would any other kind of business funding. Make sure that every purchase and expense is justified by the business, and recorded, and treat it as if you were answering to a board of investors.

Yes, You CAN

The good news is that self-funding is entirely possible, for a great many entrepreneurs. In fact, whether you start your business with almost nothing, or whether you have a small nest egg to draw from, if you are careful, it’s entirely possible that you can build up a company that is a roaring success.

Just remember that self-funding is the same as any other type of business funding. You need to be able to show results for every purchase or expense, and you have an investor – you!

How to turn your business into a franchise

When wanting to move from running your own business towards running a successful franchise a number of things will need to happen. The first issue to consider is to ensure your business is attractive enough for others to want to buy into it. Apart from that you will need to ensure a market for the product exists outside of where you are currently trading supported by solid research figures and ideally evidence of what you are doing at the moment. Lastly and often the biggest challenge for the business owner is to capture the process of running the business effectively into an easy to understand manual which franchisees can follow once they have chose your specific franchise. Remember that that this will be run as a franchise and for that to work the franchisee will be looking to do everything the same as you do/did.

Market testing is an important part of this. If you cannot prove that there is a demand for the product or service your franchisees will be offering, they will be doomed to failure.

If you can demonstrate a clear demand for your product and service, you then need to prove that the franchise model works through the establishment of a pilot operation. The pilot operation will establish that all the back-up systems including training, operating manuals, financial support and marketing campaigns are effective. It will also give franchisees an indication of likely set-up costs, break-even points and how long it will take to become profitable.

The operations manual gives detailed information on how to set up and manage a new outlet. It highlights all the key activities, and explains how to do them the right way.

As well as preparing an operations manual, you also need to decide what support you will provide. This typically includes initial training for new franchisees, and continuing marketing and administration support.

Your brand is likely to be an important part of what you offer franchisees. Even if they know how to run a successful outlet, they stay with you because your brand helps them get customers. Protecting your brand is essential. For more information on brand management, see our guide on branding: the basics.

It is important that you put in place relevant protections to prevent your intellectual property (IP) being infringed (for example by registering your trade marks and company name or obtaining patents for your products). Once you have adequate protections in place you can then benefit from your IP through licensing. It is also easier to protect your IP if it is registered and you can prove ownership. See our guides on how to use trade marks in your business and protecting intellectual property.

Your operations manual and support services are an important part of this. They help to ensure that different franchisees do things the right way and provide consistent quality.

Is franchising right for your business?

Many businesses have used franchising successfully, including well-known names like McDonalds, Wimpy, Domino's, and others. However, franchising doesn't suit every business.

To start with, your business needs to be successful. Nobody will want to buy the right to franchise a business that doesn't make money. A franchised business needs to be profitable enough to make money for both the franchisee and you.

More broadly, your business needs to be one that can be replicated in different locations by your franchisees. Businesses that need high skills levels or professional qualifications can be more difficult to franchise but all the major optician chains have succeeded in doing so.

At the same time, you need to offer your franchisees something that makes it worth their while paying you, instead of simply setting up their business independently. For example, you might have a recognised brand name, provide equipment or supplies they need, or help with training and marketing support. For more information, see the page in this guide on how to develop your business format.

Having a well-organised and well-run franchise helps you recruit franchisees and is a strong incentive for franchisees to remain part of the franchise at the end of the initial franchise period.

You also need to think about the demands franchising places on you. You need to invest in developing and marketing the format. If you have limited financial resources, or are already working flat out running your business, you may not be able to do this.

Finally, you need to have the right skills and attitude to make franchising a success. You need to be able to sell your concept to potential franchisees, and to work with and control them. Rather than dealing directly with customers yourself, you profit by helping your franchisees to be successful.

The benefits of franchising your business

The benefits of franchising include using the franchisee's capital to develop a brand at a local rather than national level. The customer then receives a better and more localised service.

Growing your business can be difficult and expensive. The more you grow, the more capital you need, for example, to finance new outlets. At the same time, managing the business becomes more difficult, particularly if your business is spread across the country. You will need to be prepared to travel around the country when giving support.
Finance

Each 'franchisee' finances their own outlet. While the franchisee meets all the costs and collects the income, you receive franchise fees or a mark-up on products sold by your franchisee. For more information, see the page in this guide on franchise fees and royalties.
Management demands

The franchisees also run their businesses, reducing the management demands placed on you. The best franchisees will be highly motivated and have local expertise, making your life much easier.

Rather than managing their business, your role involves supporting your franchisees. This is likely to include:

    * helping the franchisee find and fit out premises
    * training
    * creating operating systems to help franchisees set up and run their franchise
    * providing marketing materials and resources such as a branded website
    * running advertising campaigns to build brand awareness
    * protecting and defending your intellectual property

In the early stages you are likely to spend a lot of time growing the franchise by recruiting other franchisees - perhaps through attending franchise exhibitions and running marketing and advertising campaigns.

As your business grows, there can be additional benefits. The more franchisees you have, the better known your brand becomes. Your purchasing power may also increase as you buy more, allowing you to negotiate discounts.
Potential drawbacks

Franchising can have its drawbacks. You need to invest in developing and marketing the franchise. You also need to make sure that you get the right franchisees and control what they do. A bad franchisee can damage your reputation and brand, hurting all your franchisees.

Despite this, franchising could still be the best way to grow your business. For more information, see the page in this guide: is franchising right for your business?

Low Cost Franchise Opportunities in South Africa

Cheap franchise opportunities are highly sought after due to their low investment costs. These opportunities are available across several different industries. In addition, some of these cheap franchises are for people who would like to operate one on a part-time basis. Vending services are popular franchise choices and are relatively cheap to join. There are several costs related to franchises that need to be evaluated and researched prior to joining one.

Franchises can be started for as low as R1,000 in liquid cash and can go up to over R100,000 in liquid cash. Some of cheaper franchises have similar attributes such as they can be operated from your home and they require no additional employees other than yourself. Operating a franchise from your home can save you a lot of money because you do not have to worry about leasing or building a separate office for your business. Some examples of these types of franchises include cleaning services, landscaping services, travel planning, vending services, tutoring services, and more. Some franchises, such as vending ones, may require you to negotiate or lease space at a retail store (i.e. supermarket, drug store) or shopping mall.

Many of the cheap franchise opportunities can be operated by you with no additional employees. This can be a major cost-savings because you do not have to pay salaries or benefits. For example, if you start a franchise of vending services that rent DVDs then you may be able to manage the machines yourself from your home. Vending services allow you to operate a franchise without actively having to be present to make money. You may only be responsible for setting up the machine, negotiating the space, and ensure that it is operating correctly. This kind of part-time franchise may leave you with time to pursue another business venture, hobby, or family time.

Vending service franchises have increased substantially over the past few years. Vending machines now sell items ranging from candy to energy pills to DVDs. You have many choices in deciding which industry you want to get involved with. Consider your market and the people who visit the retail space you are going to place the vending machine in to help you decide which product may sell the best.

There are many types of cheap franchise opportunities available. Most franchise programs will state how much liquid cash is required to join the franchise program. Vending services that sell candy or rent DVDs are very popular and inexpensive to join and operate. These types of services can be operated from your home and possibly on a part-time basis so that you can enjoy other ventures.

Article Source: http://EzineArticles.com/5865051

Explaining Franchising to SA Entrepreneurs

Franchising is a form of business or type of business formation found in South African and many other parts of the world. A franchised business normally is based on an already successful business plan which the owner of the business then intends to roll out with the help of digital marketing consulting firm in other parts of the country or the world. You as the person wanting to start a business will then pay the main franchise to open and run the business in the same way and under the same brand as the original franchise. Popular examples of franchises include McDonalds, Wimpy, KFC and others. The main benefit of opening a franchise is that there is less risk involved as the business model is already working, as well as the fact that customers will often already be familiar with the business.

Franchising is not an industry in itself. Rather, it's a way of doing business that can be applied in almost any sector. Today about 3,000 established franchise brands operate in nearly 250 different lines of business in South Africa.

Franchising has two main forms. In product/trade name franchising, a franchisor owns the right to a name or trademark and sells or licenses the right to use that name or trademark. Business format franchising, the type discussed here, involves a more complex relationship in which the franchisor provides franchisees with a full range of services and support, and franchisees sign an agreement to conduct operations in conformity with specific rules laid out by the franchisor.

According to the International Franchise Association, "Franchising is a method of distributing products or services. At least two levels of people are involved in a franchise system: 1) the franchisor, who lends his trademark or trade name and a business system; and 2) the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor's name and system."

Franchising is a team effort. For any franchisor to succeed, the vast majority of its franchisees (all, ideally) must operate profitable individual franchise units over the long term. A brand's success depends on an ongoing partnership between franchisor and franchisee. One of the most common sayings in franchising is: "Franchising means working for yourself, but not by yourself."

For many, franchising's greatest appeal is the opportunity for an individual to control their destiny and secure their future. In its earlier days, franchising was a way for an independent-minded business person to "buy a job" - a sandwich shop or a home repair service, for example, and showing up every day as a hands-on operator.

In recent years, the franchise model has caught on as an attractive business opportunity for wealthier individuals and investors who buy many units at once; or who buy the rights to develop a geographical area or "territory" and develop a certain number of units within a specified timeframe. These multi-unit owners, area developers, or area representatives (some of whom also recruit new franchisees and support them within their territory) are part of a growing trend in franchising, and account for about 50 percent of all franchised units in South Africa today.

"Multi-brand" franchisees are also on the rise. These franchisees operate different brands under a single organization, creating efficiencies, economies of scale, and market penetration to increase sales and profitability. The primary reasons successful franchisees seek additional brands are 1) they have "built out" their territory for their current brand, and/or 2) they are seeking a new, complementary brand to smooth out the ups and downs of business or seasonal cycles. Franchisors, too, are combining several different brands under one roof, and frequently offer discounts to current franchisees who take on a second (or third) brand.

"Co-branding," in which a franchisee operates two brands from the same location, is another recent trend. Co-branding saves on real estate or leasing costs, allowing more profit per square foot and often balancing out day parts (breakfast, lunch, dinner). An increasing number of franchisors now offer several different brands, and often provide incentives to franchisees to co-brand.

Much of what prospective franchisees are seeking to buy in a franchise brand is peace of mind. They want to know, with as much certainty as possible, that if: 1) the franchise opportunity is presented accurately and realistically by the franchisor; 2) they take the time to perform "due diligence" by speaking with current franchisees, reading the Franchise Disclosure Document (FDD) carefully with the aid of an experienced franchise attorney; 3) after comparing the brand and sector under consideration with the competition (franchised or not); then 4) their chances of making money and building a successful business are better than if they started a business from scratch.

Yet for many aspiring entrepreneurs looking at the franchise business model for the first time - especially those coming from a corporate background - the business proposition can seem ludicrous: "Why should I pay tens of thousands of rands before I even start, and then 8 or 10 percent off the top every month for 10 or 15 years?"

For those who investigate further, the answer is clear: they can make more money faster through franchising than on their own; and they realize the potential for a greater long-term return on their investment as well -- despite paying an up-front franchise fee and a percentage each month of gross sales for "royalties" and a company-wide advertising/marketing fund. Franchise fees range from a few thousand dollars to tens of thousands, depending on the concept, while royalties generally run 5 to 8 percent and the marketing/advertising fund an additional 1 to 3 percent.

Legally, franchisees do not "own" the franchise they "buy." They are granted, or awarded, a license that gives them the right to operate and manage their franchise business. However, franchisees do own the assets of their company, and as long as they adhere to the franchise agreement have specific rights under state and federal law. Franchisees can form franchisee associations that can participate in corporate decision-making if the franchisor is amenable, or band together to oppose decisions they see as detrimental to their operation and the brand in general.