Overcome the Barriers to Becoming a Franchisor

10/03/2018 08:00 | Start a business

Barriers to franchising

For many entrepreneurs, franchising is the perfect way for them to expand their business.

It's relatively risk-free too, as franchisees are responsible for the entire cost of opening locations and therefore are more determined to succeed. This enables franchisors to grow at a faster rate than if they chose to build their business via a more traditional route.

This said, there can be challenges that wannabe franchisors may encounter along the way to developing their franchise model. Thankfully though, forewarned is forearmed, and prospective franchisors can overcome potential barriers by knowing about them before they start their franchising journey.

Here are the most common challenges that new franchisors may face:

1. Being unprepared

You may have run a successful business for many years, but this doesnt automatically mean that youll develop popular franchises. The franchise model is unique and unlike any other type of business. You need to acknowledge this and prepare to learn as much as you can about what your responsibilities will be as a franchisor.

In your role as a franchisor, you'll be accountable for training and supporting franchisees, establishing a robust franchise system and documenting procedures, so that you can offer the best business opportunities to your investors.

This can be quite a steep learning curve for some franchisors used to taking a hands-on role in the day-to-day operations of their business. It's advisable to do some groundwork to find out as much as you can before starting the franchising process. Attend franchise events, talk to existing franchisors and read all you can to give you the crucial information you need.

2. Lack of market understanding

Building popular franchises requires the franchisor to have a good understanding of both the market and the competition. What may have worked for an independent business model, may be different when the business is franchised due to increased locations in new territories.

As a business owner, its likely that youll already have a vision for your brand, but when you transition to a franchised business, you need to be clear on how your brand will fit into a bigger market. You also need to research how this market may evolve in the future.

The most successful franchisors understand how to take advantage of market opportunities. To create these opportunities, you'll need to have a good knowledge of your competitor's products and services and identify how you can develop a unique selling point for your franchise.

3. Underestimating the costs involved

One of the main attractions of franchising as a form of expansion is the reduced costs compared to other methods. This doesn't mean that significant investment isn't required though. Failure to underestimate exactly how much capital you'll need is likely to fail to develop the most popular franchises.

Creating the necessary infrastructure for your franchise model and investing in equipment and technology all take considerable time and money. Even when you've got your franchised business up and running, you'll still have to cover the costs of franchisee recruitment, training, support.

Of course, you'll receive capital through the franchise and royalty fees that your franchisees will pay, but don't expect these to cover your outgoing expenses for some time. The breakeven point will differ from franchise to franchise, but it's safe to say that having a substantial amount of working capital is advisable to fill the gap between launch and profitability.

4. Feeling the need to take shortcuts.

Due to the larger than anticipated costs involved in franchising a business, some attempt to cut corners with some aspects of the franchise development. However, not investing in the most suitable systems and infrastructure right at the beginning of the franchise journey, will only lead to more money being spent further down the line through inefficiencies.

To be able to offer prospective franchisees the best business opportunities, you need to have the right systems in place to support them adequately. Failure to sufficiently prioritise where to spend money during the setup phase can cause problems at a later date.

5. Not appealing to quality franchisees.

Without a proper infrastructure in place, it's unlikely that you'll appeal to quality prospective franchisees. And as your success depends on the success of your franchisees, it's crucial that you offer the best business opportunities to attract the right talent.

It can be tempting when you're going through the process of franchising your business, to want to get franchisees on board quickly. But this can lead to selecting the wrong franchisees which can be a mistake in the long run. A robust franchisee recruitment programme may take more time and cost more money, but the alternative is hiring franchisees that are not a good fit for your franchise and are reluctant to commit for the long term. This can jeopardise your brand's reputation.

There will always be barriers to franchising; you just need to learn how to climb over them

Franchising is exciting and interesting. Properly structured and well resourced, its a great method for business growth. But its no quick fix. Developing a franchise requires large amounts of skill, patience and capital.

The timescale for establishing a franchise system and getting it ready for launch can be several years, and even more before the franchisor is likely to become profitable. Therefore, the capital requirements of the franchisor need to take into consideration the length of time the process can take. With dedication and commitment though, your franchise will start to become profitable and provide a stable income, at which point all the rewards should be worth the effort you put in.

So, whether youve been a business owner for just a couple of years, or have been your own boss for decades, franchising your business has its challenges. But if youve taken steps to make sure that your business is ready to be franchised, and youre aware of what obstacles may lie ahead, then youre already on the path to success as a franchisor.

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