The franchise structure can give you a leg up in building your business. But if you are not prepared to face the following common problems, they could easily derail your company. A franchise owner must know how to handle finances, taxes, people and day-to-day operations in order to create a strong foundation.
To help you avoid some common missteps, here’s a list of potential issues:
1) Unclear Branding
A franchise concept should be easily explained in six seconds. If you can’t explain your brand within a quick elevator ride, then you’re going to have difficulty selling prospective franchisees on your business model. Consider working with someone who can help define your franchise and brand if you are having trouble crafting a cohesive message.
2) Location, Location, Location!
Two notes about location:
1. When launching a franchise system, think about how quickly you can (not want) to grow. Expand too fast and you risk overwhelming your management team and straining your finances. Consider rolling out slowly and contiguously. This means starting local before going global or you and your team will spend endless time on airplanes visiting each franchisee. You may want to keep your early franchisees fairly local – within a three- to four-hour drive.
2. Expand into locations that actually hold your target customer or watch your franchisee fail. Listen to your franchisee, but do be aware of the demographics of the community under consideration. Make sure there is interest in what your franchise offers. Or, advise your franchisee to choose a different location.
3) Define your Territory
Undoubtedly, most franchisors mean their franchise systems to become big chains, expanding throughout cities, states, and countries. To meet those goals, you must have a plan in place to help you. Successful franchises segment each city, state and country into territories and delegate oversight as the franchise grows. Beware of expanding too quickly. You could risk depleting and bankrupting your entire franchise system.
4) Think Money
Starting a business takes a significant amount of money. While some businesses may launch on shoestring budgets, that’s not the way you want to start a franchise system. Be prepared financially so that you can maximize potential opportunities and survive possible downturns. Being properly funded can make it possible to take advantage of surprise- or short-windows-of-opportunity to promote your franchise. Consider launching with a six-figure bank balance cushion.
You have established your business in several locations successfully. Now you want to grow your footprint even larger…and further by franchising. “Simple,” you say, “as I am already running a multi-location operation, franchising will just make the same business bigger!”
Not so fast. Managing a franchise system is not the same as managing the business you are currently running. You no doubt already work hard, putting in long hours. But you control the show. As a franchisor, you still are in charge of the franchise system, but your franchisees technically run their specific operations (within the parameters outlined in their contracts). Managing franchisees can be a bit like herding kittens. And, as your system grows and expands geographically, management and oversight require even more time away from your family. Be sure to consider the potential impact of even more work on your family/work/life balance.
6) Educational Content
When your business concept is shared with many franchisees, time and money should be channeled into creating resources that connect your franchisees to the heart and soul of the company. Share your company’s “story” — its history and the charismatic story of a founder who drove the concept’s initial success. Ensure it is clearly communicated to franchisees in a manner so that they, too, feel the same fire and enthusiasm. Be sure to consider whether you want to share your educational content through a video, workbook or a combination of the two.
7) Exit Strategy
A founder’s leaving can gut the heart and soul from any business, but often more so for a franchise system. A well-thought-out and fully communicated exit strategy is imperative to ensure the business continues successfully. As a franchisor, you should have a goal in mind for your eventual exit from the franchise system. This will help guide how the exit strategy is implemented.
Prepare yourself and your franchise system by taking steps to avoid these common franchise problems. Most can be addressed by speaking with a knowledgeable franchise attorney. If you still have questions, feel free to contact me, Julie Lusthaus at firstname.lastname@example.org and let’s talk.