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Thinking of Franchising? The Time is Right!

The recession is over, the general population is out spending their hard earned dollars once again and many are spending these dollars on restaurant services.

The recession has made many restaurateurs take a closer look at what they are doing and how they are doing it. Restaurants and foodservice outlets have become smaller, more affordable to the buying public and more user friendly.

If you fit in this category, you may want to think about expanding your business using other people's money.

What is franchising? Franchising is a method of development and expansion which is based upon the licensing of your operating name, corporate identity and operating systems to other individuals or companies to carry on an identical business in another location.

What are the benefits of franchising? A franchisee brings a successful operator many benefits. First, the franchisee brings capital to the operation. The franchisees will be required to build their foodservice outlet with their own money or money which they borrow without any risk to the franchisor.

Second, many successful franchisors insist that the franchisee act as an owner/operator of their franchise.

Thus, the franchisor is, in effect, obtaining a location manager who has a very strong vested interest in the day to day operations and success of the location.

Third, the franchisor collects a revenue stream from several different sectors including, but not limited to: initial franchisee fees; royalty payments; and value added reselling of specialty products.

Finally, the franchisor obtains the ability to open several units simultaneously, thus, increasing their market presence and market share.

What are the basic requirements to franchise?
In order to franchise successfully, the potential franchisor should have their operation professionally reviewed in order to ensure that they are, in fact, ready to franchise.

In order to be ready:

• The franchisor should be a profitable operation with at least a 15% operating profit (remembering that the franchisee is going to pay a royalty fee of approximately 5%). A 15% profit margin for the current operation will translate into a 10% profit after the royalty payment is deducted.
• The current operation should also be a model for potential franchisees to look at and assess as to what they want to build. If it is not, a prototype should be built in order to make it easier to sell the concept and product.
• The operator should have standard Systems of operation which work effectively on a day to day basis.
• The operator should currently have more than one unit in operation in order to assure both themselves and prospective franchisees that the concept is, in fact, transportable (i.e. it will work successfully in a second location).
• If your operation meets with the minimum requirements noted above and you want to expand through franchising, then it is time to put together the professional team who can assist you realize your goals.

The Team:

One of the key players on any franchising team is a lawyer with expertise in the area of franchise law.

While your general counsel may think that he or she can advise you on general franchise issues, it is best to have an expert in franchise law draw up your franchise agreement, licensing arrangements and oversee your leasing arrangements.

This expert will work closely with your current general counsel, but will provide you with significant expertise for more or less the same cost.

A management consultant with expertise in the franchise and foodservice industry will also be an important asset to your team. The consultant can work with you to identify whether or not you are, in fact, ready to franchise. They can also assist in preparing the proper documentation of your systems, recipes and manuals. In addition, a franchise consultant will be able to assist you in developing your business plan for the franchise operation.

An accountant with expertise in the franchise area will also be of great assistance to any potential franchisee. Monitoring franchisee sales and controlling operational costs are very significant aspects in rolling out a concept successfully.

A good accountant with expertise in the area of franchise management and development will be an asset to your organization.

Conclusion

Many operators want to franchise, many try and only a few succeed. Why they succeed is apparent once you have been consulting to the business for a long time.

Those successful operators have ensured that their franchisees will make money, that they will be provided with a full package of support materials and a full and in-depth support team.

This commitment to servicing the needs of the franchisee is the key to success. As you become a franchisor, your customer changes from persons wanting a hot lunch, to that of the franchisee. You must support that franchisee in every way possible in order to help them achieve success.

Build the franchise system in a thoughtful and organized manner and you will likely succeed. Develop it without the assistance of experts and you will inevitably fail.

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