A company that is interested in expanding its business operations by opening additional branches can do so by establishing new branches (owned by the company), or it can also sell franchises to franchisees wanting to share in the company’s success.
However, before outlining the franchise strategy, a number of important points need to be taken into account:
- It is very important to register a trademark for the company’s logo, or at least submit an application for registration (registering a trademark is liable to be a lengthy procedure, but as soon as the registration is accepted, it applies retroactively from the date the application for registration was submitted). Often the company logo, in the public’s eyes, is equivalent to its reputation, and therefore use of the company logo by unauthorized third parties could cause serious damage to the company’s reputation.
- Location, location, location – it must be remembered that from now on, the franchisee is not only a partner to the success of the franchising company, but it can also cause harm to the image and reputation of the chain. One of the worst things that can happen to a franchising chain is for one of its branches to stand empty, and so the company must be involved in the choice of location for the branch. Moreover, the franchising company must ensure that its status is also defined in the rental agreement with the landlord, and that it will have the right of first refusal to rent the property in the event that the franchisee breaches the rental agreement, or alternatively, the franchising company can rent the property itself, with the franchisee defined as an “authorized person”.
- Uniformity – a franchising company interested in maintaining its standards has to ensure that the standard it has outlined for itself is upheld by the franchisee in every possible aspect, from design of the branch to service policy, and everything in between. In this context, it is important to remember that the franchisee usually finds himself alone in his interactions with the supplier, the customer, and even his own employees. To this end, it is not enough for the franchise agreement to define, for example, the size of the napkin. The franchising company has to draw up a set of procedures detailing in depth all the procedures of the chain, and prepare the franchisee himself in how to deal with any problems that may arise, in accordance with company procedures. The franchising company also has to set up a training system to prepare the new franchisee for what lies ahead. This training should not only be theoretical, but also include practical work in which the franchisee will acquire real experience in each of the roles that his employees are going to fill. If we are talking about a food chain, the franchisee needs to acquire experience as a waiter, barman, cook, shift supervisor, and so on.
- The most complicated and complex decision of the franchising company would appear to be the choice of franchisee, and so the company needs to make a careful selection of its franchisees, and there is no “textbook solution” that can help in this matter. At the same time, while it is important for the potential franchisee to be independent and a person of initiative, since the franchising company is not looking to add a burden, at the same time the franchisee should not be too independent: as mentioned, he needs to operate in accordance with the outline of the franchising company, and cannot employ too much discretion. Another point is the franchisee’s source of finance. Naturally the company is looking for a franchisee whose sources of finance are reliable, orderly, and ongoing. As mentioned, a branch that closes, even if it is purely the franchisee’s fault, will always cause damage to the image of the entire chain.
- In addition, the company has to build a detailed business model in which it relates, among other things, to the way in which royalties will be received from the franchisee, the cost of the franchise, the cost of renewing the franchise, division of profits, and so forth.
Companies and individuals that are interested in expanding their business activities by selling franchises, while minimizing the risks involved, are invited to contact us to arrange a consultation, during which we will be happy to share our experience and guide them to success.