Before you start Franchising

Developing a franchise module requires a great investment of time and money in brand building, training, advertising, expert guidance etc. So if you have decided to get venture into franchising here are some guidelines.

The Prospective Franchisee: An important aspect of developing a franchised business is the identification of franchisees. The franchisor should realise the necessity of developing a methodology to predetermine some method for choosing perspective franchisees. The franchisor should not just focus on individuals with adequate capital but also on those that possess the moral character to be strong franchisees, as the initial franchisees play a pivotal role in the long term success of the chain.

Prospective franchisees will see the franchise as a much more credible and attractive proposition if it is affiliated with a credible non-profit worthy institution like Confederation of Indian Industries, Franchising Association of India etc. Mr. C. Y. Pal, President, Franchising Association of India adds that as franchising being at a nascent stage and the markets currently unregulated, there are several cos. which may not function in the most transparent manner, and thus, such associations are of great value.

Before designing the functional components of the franchise, the service being franchised must be clearly defined. What is the product / service? How will it be delivered? To whom and by whom? And under what circumstances will it be delivered? All aspects of franchise operations should be field tested and optimised before expanding the network. Franchise managers need to remember that franchising is, by definition, a mechanism for rapidly expanding a proven business model. The entire franchise system is at risk of failing if its business model is flawed. The franchisor should have atleast 2 – 3 successfully running, company owned outlets in different localities. The only way to prove the viability of the model is to test it. Before franchising a service, the service delivery model and all its functional components must be developed and tested to ensure that they can be operated feasibly and that, taken together, they bring about the desired result. Only then should franchise expansion occur. The company owned outlets are live examples for the franchisee to visualise the role they would be playing.

Initial buy-in and endorsement of key franchisees lends credibility to the franchise chain and facilitates its growth. Involving franchisees in the initial design phase of the franchise is key to obtaining their buy-in. Franchisees also provide invaluable inputs. Franchise managers should ensure that they identify and consult with their franchisees from the outset and that they involve them in key design issues. It is also important to obtain the endorsement of a locally recognized and well-respected institution. Franchisees need to be consulted and convinced before decisions are made. Decisions cannot be forced upon them.

Clear guidelines should be given covering all aspects of service delivery. These guidelines help both the franchisee and the franchisor understand precisely what it is that they are marketing to their customers, i.e. what consumers can expect from franchisees. Only after defining the product should components of the franchise, such as training and evaluation, be developed.

A fully functional and reliable Management Information System must be in place before implementing the franchise so that data can be recorded accurately from the beginning of the project and proper monitoring and evaluation can occur. The MIS should be designed to adapt to changing data requirements over time. Reasonably reliable data are essential to evaluate a program and its effects. While the need for a sound data system seems obvious, experience has shown that it can be very difficult to achieve. The system must be based on a thorough needs assessment and must respond to the development and use of well-designed paper records and data models at appropriate decision points in the program’s life.

Additionally, program staff must understand and have confidence in the MIS. If they do not, they will create their own independent systems for record keeping. Reliability problems with MIS may result in training, sales and finance staff maintaining different, overlapping data systems (in addition to the MIS). Not only is this inefficient, but it also results in conflicting information that is difficult for program managers to interpret and manage. The importance of reliable and coherent MIS data cannot be overstated: information is the basis of the feedback loop that allows the franchisor to monitor franchisee performance and thus maintain appropriate control of the franchise.

Data also provide the basis for evaluation, which is critical to assessing and improving the services franchisees provide. Finally, the MIS must perform a variety of different functions efficiently, such as tracking sales and quality of service, and still yield systematically consistent results. Gradually, new parameters to the MIS can be added to improve measures of quality, keep track of changes in providers.

The franchise agreement is a legal document that clearly stipulates the roles and responsibilities of franchisor and franchisee and that outlines the mechanisms used to enforce contractual compliance is necessary. A strong contractual agreement should be balanced with the need to make the alliance more appealing. It should also stipulate the duration (generally 10 to 20 years) of the franchise agreement. Because of the complexity of these documents, it is recommended that the start-up franchisor find a lawyer who has had experience in the franchising field.

A strong franchise support team large enough to cover franchisees adequately and with appropriate frequency is necessary to offer on-going training, follow up and support and also control the quality of the service provided.

This can prove to be one of the most beneficial features of the network.
Having company executives follow-up with franchisees is clearly an important contributor to the franchise module’s success. But the training course is only the beginning of a very long process . providers need to feel comfortable with their work and stay motivated over the long run. This is exactly what this system accomplishes. During site visits, the monitoring team give franchisees the opportunity to ask questions and discuss concerns. As this team has personally recruited and trained the franchisees, the comfort level with these franchisees is high.

This team helps franchisees maintain their motivation and boost their morale when their business volume is not high. Finally, a strong monitoring and support team is required to ensure that franchisees adhere to the specified norms and maintain appropriate records.

A quality training program is crucial for the success of the chain. To the extent possible, the training program should be developed in-house so that the franchisor has direct control over the quality and scheduling of training. In-house training development would no doubt be an added expense, but it pays off in the long run. It is well worth as compared to the benefits of having greater control over the quality and scheduling of training.

The process of creating training programs involves identifying training needs; developing training curricula to address identified needs; writing a trainer preparation course; recruiting and training master trainers who would be responsible for developing new trainers. The thoroughness and effectiveness of the training program is an evolving one.

The franchisor also needs to prepare a formal and comprehensive evaluation of these training programs. The program should be evaluated by the trainer (whether it is effective with the audience) and also by the franchisee (if some aspects are overemphasized / not taken care of)

Financial feasibility should be thoroughly assessed. In addition, before franchising, it is important to determine, through the development of pro forma financial statements, the feasibility of the entire operation. The proper franchisor cash flow statement should illustrate to the franchisor and possible investors the actual start up costs and returns that the franchisor will incur. Most franchisors will incur a loss during the first and second years. Many franchisors hope to overcome this loss during the second or third year or operations. The proper pro forma cash flow and balance sheet should give a proper picture and illustrate the financial hopes of the organisation.

A franchisee is convinced about a particular franchise opportunity, if it is lucrative (in consideration with his investment). One of the most important aspects of developing a franchising program is taking the proper steps to develop a Business Plan. The franchisor should ensure that the franchisee fee charged is just right. If the free he is charging is low (his brand will be perceived to be a weak one) and if high then it may shy away prospects. The royalty being charged should be nominal, so that the franchisees view it as a viable and lucrative proposition.

McDonalds is synonymous with successful franchising, for the fundamental reason that it allowed its franchisees to prosper first and then due to strong evangelism, more franchisees were convinced to join McDonalds and simultaneously, McD benefited from the economies of scale.

To the extent possible, community-based activities should be incorporated into strategies to create demand. These activities should involve the franchisees. For maximum leverage these initiatives should be related to the product / service provided. It should benefit your target audience. More in-depth information (pertinent to its service) should be disseminated, so as to create future demand for services. The franchisor should try to reach more potential clients through direct public contact.

Care should be taken to provide ongoing motivation to franchisees. While involvement in the franchisee’s operations would benefit franchisors economically (through increased clientele) other incentives must be built in to the partnership to keep franchisees motivated (especially in times when business is low) when they do not see immediate or clear economic rewards.

The franchisor needs to be able to properly identify the target market, the product being offered, and the advertising program which will be used in the franchising units. Additionally, many franchisors strive to develop a proper franchisee profile which delineates the characteristics of the franchisees whom they seek as partners in the franchising business. A manager profile is often also developed which franchisees may then use to screen or hire prospective managers for the organisation. It should also be noted that different form letters, paragraphs, and packages should be developed by the marketing people before the franchise is actually up and operating.

CONCLUSION
The franchising program is an evolving one, and a successful franchising organisation should be flexible and continuously fine-tune and refine its module and address the various challenges arising with respect to legal, financial, sales, administrative, and marketing areas. Franchising is a vibrant and exciting opportunity for businesspeople that desire to expand their operations through this method of doing through this method of doing business. Franchising is the wave of the future.

Dhawal Shah, Dy. Executive Officer of Franchising Association of India. Dhawal Shah is described as a franchise enthusiast. He has always been intrigued by the power of franchising. Based in Mumbai, he constantly reads and writes on franchising and its enormous potential in India. He can be contacted at dhawal@mail.com