Franchising is big business these days. Many retailers and restaurants operate under the franchise model. But how does one go from thinking about franchising to actually developing and opening franchises? That’s where a Franchise Development Plan becomes a necessity in successful franchise operations.
In order to deliver on the commitments promised to Franchisors, there must be a plan in place and all the proper people to deliver on that plan. As part of that plan, you have four steps before the restaurant/retail site even opens:
Getting the leads
Signing Franchise / Development Agreements
Getting the Franchise Leads
People often inquire about becoming a franchisee through a company’s website. When they make that inquiry, they become a “lead” to qualify for the franchise model. This may include validating an equity stake required to own a franchise and other activities. Typically a franchisee will need to have extremely good credit. They will need available equity sometimes in the hundreds of thousands of dollars (cash) to put into the business. And they must be fully available to manage the new franchise, including lots of training before it opens. A solid Franchise Lead Questionnaire will help you weed out bad leads from the good ones. After all, these leads--these people-- will eventually become part of your business long term.
Signing Franchise/Development Agreements
Once the lead is qualified the next step is to get the franchise agreement signed. Sometimes franchisors don’t realize how detailed or important this step is. A franchisee should have a lawyer on retainer to review all documents for their franchise endeavor, especially the franchise agreement. It is the Franchisors responsibility to lay this out in advance and will set the tone for the relationship. This document will lay out everything from where to build the franchise to the type of silverware the franchisees need to purchase.
Franchise Real Estate
Finding a site to build the franchise on is typically a difficult step for new franchisees especially if they’re not familiar with the expectations of the franchise brand or local markets. This is where your recommended broker can be a huge help. Brokers are familiar with the local areas and can show the franchisee the most effective locations to match the franchise brand needs and expectations.
The franchisor will use a Letter Of Intent (LOI) to hold a construction site. If the franchisee is unfamiliar with the LOI process, the company will provide assistance on this step but it is recommended they get their own attorney. It’s important to have an attorney that knows the business of commercial real estate to review all documents through this process.
Moving forward with franchise ownership can often be a very emotional event for people. It’s important to not allow the new franchisee to get attached to any particular location. In order to have a successful franchise business occupancy costs should remain at or under 8% of the total budget. Sometimes people get emotionally attached to a specific site even when the numbers don’t add up; it’s the franchisor's responsibility to keep things moving forward within the franchise formula. Once the site is selected and land agreements are in place, the true timeline of activity will begin.
Building the business is an exciting and busy time. If you are building a restaurant there are many, many activities to complete. Retail businesses are far quicker and simpler to build out & open simply because there are fewer inspections and less equipment to put into place. But in all cases, the established Franchise Development Plan lays out a realistic timeline to accurately predict the earliest opening date. Plan for a full year of activity between Lead qualification through construction for restaurants.
The company will help the franchisee by giving weekly updates, photos, etc and they will get all required permits, certifications and the final certificate of occupancy. Next, the company will provide operational support, training for staff and assist in the opening of the restaurant. This is typically a three-month timeline to the grand opening. The marketing and sales teams support the franchisee during the grand opening. Typically, a few weeks after the grand opening the franchisee is given full reign of the business with additional assistance if they need it.
A well-crafted franchise development plan allows both the franchisee and franchisor to be on the same page from the very first contact and to hold each other accountable for getting to profitability more quickly. Providing this level of clarity to franchisee leads is vital. Having a well-informed, qualified franchisee lead that is prepared and able to quickly move into signing all the agreements for the franchise, the site location, and construction does not happen without proper planning. Franchise development plans are a key to making new franchise locations happen.
Image by Sony llce-600