Essential steps to building a successful franchise

Karen Keylock, national retail services manager at Nedbank Commercial Banking. Images supplied

In this article, we explore the journey to creating a successful franchise.

The feasibility test

The first step to building a successful franchise is having a concept that has been growing well as a freestanding business, and being able to understand how the business operates and what is at the root of its success.

Essentially, several critical success factors need to be examined, which can be done by closely evaluating your responses to these 12 questions.

1. Does the business operate in a large and growing market?
   
2. Is the growth in the market sustainable?
   
3. Are the margins sufficient to cover the proposed management services fees?
   
4. Can the product demand a price premium?
   
5. Does the franchisor have access to sufficient capital?
   
6. Does the potential exist to establish a memorable brand?
   
7. Is there a substantial barrier to entry – not easily copied?
   
8. Will the development costs permit a satisfactory return on investment?
   
9. Is it possible to grow a franchise culture in the company?
   
10. Does the concept have staying power?
    
11. Is it relatively easy to transfer the required skills?
    
12. Are suitable systems and procedures in place?
    

This assessment helps you better understand the proposed business model to be replicated and allows you to gather the information needed to review your business with a view to developing a strong franchise value proposition.

This would include product and service range, pricing and competitiveness, skills and systems needed to run the business, marketing and branding, supplier relationships, staff training programmes, and financial models.

Develop an expansion plan

Assuming the information you’ve gathered is positive from a franchise feasibility perspective, the next step would be to formulate a practical expansion action plan for the structuring, development and replication of the business.

This expansion plan should detail the ideal expansion format; the value proposition for the franchisee; franchise fee structure and documentation; franchisee needs, support and training; a geographical expansion plan; marketing of the franchise opportunity; a proactive recruitment and selection process; and the ideal owner-operator/franchisee profile.

Finding and securing the right franchisee for your brand

3 Jul 2024

Taking care to decide who will make an ideal franchisee is an essential step. Franchisers make a huge investment in their franchisees and depend on them to help them grow the business.

The potential franchisee needs to identify the skills, experience, and characteristics essential for success, develop a profile around these findings, and stick to it.

Tools such as psychometric assessments to assess whether the potential franchisee fits the required profile should be considered.

During this stage, we recommend that potential franchisers operate at least 1 unit at arm’s length to test the concept as a franchise, perhaps as a joint venture with a trusted staff member.

This helps identify and address problems and eases the franchisee into their new business model. Retaining this company-owned outlet also helps to generate income to fund ongoing operations and forms the ideal base for providing training and testing new products or services.

Implement your expansion plan

During the implementation phase, the most important steps are training key management and support staff, and the development of franchise documentation in conjunction with industry experts.

These documents include the franchise disclosure document, franchise agreement and franchise operations manual.

Franchisees embrace multi-franchise arrangements

5 Jun 2024

This phase also entails marketing the franchise opportunity and franchisee recruitment, identifying training courses for franchisees and franchise support staff, and monitoring the progress of the franchise development.

Seek bespoke financial support for your franchise system

A crucial component of this stage is presenting the concept to commercial banks or funders. From Nedbank’s point of view, we would create a client value proposition, which entails a preferential banking solution to be offered to your franchisees.

This would include lending guidelines that cater for various scenarios, including the financing of new stores, multi-site opportunities and refurbishment of stores; pre-arranging transactional pricing at group benefit rates for all franchise stores; and offering value-added solutions for the business.

Once these phases have been completed and successfully implemented, your business is ready for expansion, and you are now officially a franchiser!

The process outlined above can be daunting and may take up to a year to complete, but it’s worth putting in the time and energy upfront as this gives your franchise business a better chance of success.