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During our academic years, we have always been taught on the basis of theory, and evaluated on knowledge, however we have not really been tested and judged on the capability to fulfil our practical potentials. Franchising enables us to score our estimated future success, based on a model that has been created by Operating Managers.
How do we assess if we have the financial stability to franchise?
Franchising, as an alternative form of capital acquisition. The primary reason most entrepreneurs turn to franchising is that it allows them to expand without the risk of debt or the cost of equity. The franchisee provides all the capital required to open and operate a unit, it allows companies to grow using the resources of others. Ensuring feasibility studies are carried out to ascertain the correct information is acquired before proceeding.
Important components to look out before acquiring a franchise
If you have made up your mind to go down the route of franchising, after assessing that this is the right route for you to take, we would recommend that you become a guest to your potential franchise, however do not show interest in the franchise model until you have researched the feasibilities regarding capital and ROIs, Social Media accounts, and the key positions of employees who are handling divisions internally. This is important as it paints a picture of how the franchise is managed strategically.
What is the next step?
Once you have confirmed your franchise, and are able to operate your business, you will pay the required fees, sign the Franchise Agreement, and agree on the necessary Terms & Conditions.
Often franchise contracts are stipulated for a short period of time, which is not feasible with the project investment. Based on the business plan and financial performance study, ensure the terms are analysed closely. Too often franchises are for long periods of time, for example 10 years, this will entail the franchisee to be locked in for a considerable time, and if he wishes to sell the franchise to a third party, this will not be possible. Negotiate an installment plan that will work right for your franchise fee, ensuring that the cash flow is spent progressively, not aggressively. Renewal Terms may involve additional legal fees, ensure that you have read all legal clauses with your lawyer. If you can waive this limitation, proving your company will cover any legal costs, this would be a more viable option to consider.
Territory of the Franchise
Obtaining a franchise restricts you in operating in other zone areas, ensure you do not expand your operations beyond limitations stipulated on your contract prior to signing.
Obligations to use the same suppliers, to undergo operational training programs, conforming to Stand Operation Procedures, Branding Guidelines, will have to be followed. Understand where grey line areas may arise, if any questions trouble you, please communicate your concerns, and perhaps recommend that you may have a better supplier who can give you a better deal, and if you require training for your staff, can they send the trainer to your location? Or if new products or services have been introduced will you have time to prepare?
Marketing & Advertising
If you obtain one franchise branch, whilst the franchisor has thirty, ensure marketing fees are in proportion to your part of the pie. As you will pay for marketing and advertising costs, ensure you have a partial right to decide on making the right choices in deciding what marketing is feasible, and you have the freedom to participate in marketing meetings to keep up to date with activations or promotions.
Setup Costs & Fees?
Calculating your initial fees, any progression fees for the arrangement terms, ensuring they are included in your P&L Forecasts, will enable you to decide how feasible the franchise is.
If you have decided to set your own recruitment procedures, organizational chart, employee profiles, and count of working hours, please ensure franchisor does not hinder the support for your opening, as each opening you do, shall be assisted by the franchisor and their teams, in giving you the required trainings and guidance.
Trademarks are set and are to be used with no applicable changes made, ensure you are compliant and agree with this set condition. Forecast what may happen if the franchisor becomes bankrupt, if it becomes evident that you or the franchisor is going into bankruptcy, if you manage to find a suitable investor for the franchise, the transferring of the contract will not involve legal issues or too many financial implications. On a final note, if your intuition is giving you even 1% in hesitation, we would advise not proceeding with the franchise. Franchising is a legal obligation once signed between two parties. On a positive note, franchising is a beneficial and mutual business partnership, where you not only pay fees for a well-developed business model to use their brand name, but also paying for the support and development of a business opportunity.