Maybe you are just entertaining the idea of franchising as an opportunity to expand your brand. Perhaps you have been engrossed in franchise operations for quite some time but still haven’t reached a comfortable level of cohesion and efficiency in the company processes. You might be considering opening your own franchise and aren’t sure where to start. Wherever you are in your franchising journey, a little refresher about the franchise basics can help you get the answers you seek or point you to the right tools.
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Centered on a relationship where both parties are mutually invested in each other’s growth, franchising offers unique benefits to both franchisor and franchisees. With franchisees' resources, franchisors can expand much quicker than they could on their own or by attracting investors or lenders. The continuous inflow of franchise fees and royalties allows franchisors not to worry about repaying loans or giving up control to outsiders.
In return for franchisee’s capital, the franchisor lends them their proven business model and the brand’s established image. Franchisors also provide franchisees with training, support, and resources, thus helping them open their locations and start making profits within a much shorter time frame.
In the following guide, we'll provide an overview of important operational elements during different phases of franchise development and highlight the areas to focus on for improving franchise processes.
Starting a franchise requires a hefty investment and some advanced business planning. That is why, to many entrepreneurs, the franchising model does not make sense at first glance, as they are perplexed by significant upfront costs and the amount of restructuring that needs to be done. However, with a closer look, many individuals see how they can attain more rapid growth and larger profits by franchising versus venturing on their own.
Since franchising will change your business model and structure entirely, you will have to plan and budget for various cardinal changes within the company. Be sure to plan financially for each of these areas:
Legal fees for trademark and franchise registration
Legal fees for drafting contracts and a Franchise Disclosure Document
Accounting fees for preparing audited financial statements
Fees for creating operations manuals
Hiring franchise expert personnel
Marketing (check out this Franchise Branding Guide)
Two Common Franchising Types
The two primary types of franchising are product or trademark franchising and business format franchising. In the former, a franchisor is the sole owner of a trademark or product and can sell or license the right to use the trademark or product to others. In the latter franchising form, the franchisor and franchisees enter in a contractual relationship, where the franchisor is obligated to provide support to the franchisees, while the franchisees are legally bound to follow the operation rules outlined in the contract. In other words, the franchisor allows the franchisees to use their trademark and business system in return for royalties and other fees.
Current Franchising Trends
The two current trends in franchising are multibranding and co-branding. Both of these popular franchising options offer specific benefits for franchisors and franchisees.
Multibranding for Balance, Diversification, and Cost Reduction
Franchisees might want to take on additional brands when they have reached the development potential for their current brand. Operating several brands can also help franchisees even out business cycles and seasonal inconsistencies, thus helping them achieve a better balance in operations and profit generation.
Franchisors also often combine several brands under one organization. Typically, they offer attractive terms for the franchisees who run several of their brands, because they now spend less time and resources opening new locations for the franchisees they already have a relationship with. On another hand, by running several brands, franchisees diversify their investment portfolios and lower the startup costs and efforts.
Co-Branding for Higher Profits and Operations Savings
Co-branding allows a franchisee to run two or more different brands under the same roof, thus offering savings on real estate costs and higher profits per square foot. However, co-branding needs to make sense, and the brands should complement each other and cover the customer needs that go together. A perfect example of co-branding is a gas station kiosk serving Subway sandwiches. This concept targets two of the customer needs perfectly ― when after a long drive and drivers stop for gas, they are very likely to be hungry, as well. If executed properly, co-branding business strategy can boost your sales and reduce the costs.
Home Office Communication Is Essential
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A brand's success is built on the successes of the individual franchise units. Due to the nature of the franchising business model, the well-being and growth of a franchise depend on the quality of the two-way franchise relationship between a franchisor and the franchisees. Thus, open communication channels are one of the most important factors determining the outcome of a franchising endeavor.
Communication needs to be effective and free of obstacles. It also has to travel in both directions ― a franchisor should have systems in place for getting in touch with the franchisees easily. At the same time, a franchisor needs to be accessible to franchisees via various ways, as well.
Managing All of the Moving Parts
Both a franchisor and the franchisee will have different sets of tasks and duties to fulfill as the franchise unit progresses through different stages of the franchise development. Both parties will be engaged and work closely with each other on the process during the initial stages ― before, during, and after the opening. Although every franchise concept will have their own list of things to be completed during each phase, certain organizational and operational aspects will be the same across the board. Here is a general overview of what needs to be done by franchisors and franchisees and what they can expect during different time periods.
A Franchisor's Involvement In the Pre-Opening
At the pre-opening stage, a franchisor must fulfill certain responsibilities and obligations to the franchisee, all of which are clearly described in the franchise agreement. At the time of contract signing, a franchisor will typically assign a team of people to support the franchisee on different levels and with various issues. The duties of this team of professionals range from answering the franchisee's questions and helping resolve problems to training to overseeing the location's operations. As the franchisor's representatives, they also make sure that a franchisee is properly prepared to operate the location and that the location is fully equipped and compliant with all the rules and regulations.
About two to three months before the grand opening, a franchisor gets heavily involved in the operational department to make sure the franchisee is ready for the opening. At this point, a franchisor starts going through a long list of things to be completed before the opening. For example, all the equipment needs to be ordered four months prior to the grand opening. Leading up to the grand opening, the franchisor's operations team will typically hold weekly phone meetings with the franchisee to ensure every single point is covered and that the business is ready to launch.
Final Touches Before the Grand Opening
A franchisor's work does not end with preparation. They will usually pay a visit right before and during the grand opening of the location. A franchisor's team will come in for final checks to confirm everything is set for the opening. The team will thoroughly examine the location to find, for example, whether there are any construction issues, whether the food is ready, and whether staff members are on-site.
By the time of the grand opening, a franchisor needs to have the franchisee's management team properly trained. Such training usually takes place at one of the franchisor's sites and could last anywhere from three to five weeks. Staff training is another contractual responsibility of a franchisor. As the day of the grand opening gets closer, a franchisor and the franchisee will come together to train the hourly workers of the location.
Continual Support and Mentoring After Opening
After the location's opening, a franchisor will keep supporting the franchisee with operations and marketing. Each franchisee will usually have a dedicated account representative from their franchisor with whom they will be in constant contact. The franchisee may come to their account representative with any questions or issues they run into.
As franchisees begin operating a location, they will typically have many questions and encounter various problems, so the unrestricted communication with the franchisee's support personnel is essential for keeping the operations as smooth as possible. As the franchisee gains some experience and comprehension of how to run the business, they may not need as much support and communication might become less frequent. However, a franchisor's responsibility to help the franchisee with any concerns or issues lasts for as long as the contract between the parties is active.
This relationship with the franchisee continues forever. It never goes away. The communication may lessen once the franchisee understands running the restaurant but if there are issues, concerns, or changes in the operations, that’s all part of the franchisor’s responsibility.
Franchisees require the franchisor's support to operate the business correctly. It's in the franchisor's interests to aid the franchisee, to make sure that the franchisees adhere to the standards set out in the contract, and to ensure the franchisees maintain the brand's image. For this purpose, a franchisor will perform planned checks and audits of the units and provide franchisees with ongoing feedback.
Up to four times a year, a franchisor will send out field consultants to audit the locations. Such audits are important, as they allow the franchisor to evaluate the performance of the franchisees and whether they need any help to properly represent the brand. If a field consultant spots any deficiencies or discrepancies in how the location is operated, they will point them out to the franchisee and thoroughly review them together so the franchisee can take the right measures to get on track.
Aiding and guiding the franchisees is a dual-purpose responsibility for a franchisor. On the one hand, a franchisor is bound by the contract to help out the franchisees with any issues for the duration of the contract. On the other hand, taking care of their franchisees and helping them be successful serves the franchisor as the success of the whole brand depends on the success of each individual location.
The Role of the Franchise Field Consultant and Utility of Franchise Operations Manual
Although franchisees get support from the franchisor via various channels, the two main reference points are their field consultants and franchise operations manuals.
A franchisor's field consultants usually have a lot of expertise in running franchises. Often, they oversee several locations at once and have a bird's-eye view of the business and the entire system. This allows them to notice any commonalities, trends, and repetitive issues. Field consultants also share the knowledge with one other, which makes them even stronger as a group.
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After dealing with multiple franchises and their numerous issues, field consultants become experts at identifying the best possible practices for dealing with and effectively resolving any kinds of issues a franchisee might come upon. When a franchisee comes for help to one of the field consultants, they get input not just from one single individual; they share in the knowledge and experience gathered by the whole group.
Standard Operations Manual
Every franchise creates a standard operations manual, which every franchisee needs to have and rely upon when running their locations. A standard operations manual is an extensive document that covers all the aspects of running a brand. It lays out sanitation practices, personnel attire, recipes, specifics of design and signage, etc. in detail. Essentially, a franchise operations manual has the answers to any questions that the franchisee might have and can eliminate any uncertainties about operating and managing a franchise unit. It does not leave much to the imagination, even when it comes to minute details, such as how to slice cucumbers or where to buy napkins.
Understanding the Franchisor Disclosure Document
The Franchisor Disclosure Document is worth examining in detail before signing your franchising agreement. In this document, you might discover certain information that is not publicly available, which could play an important role in your decision to become a franchisee for a particular brand.
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Every franchise is legally required to make a full disclosure to their franchisees of the brand's historical well-being, including negative and positive aspects alike. A franchisor also needs to disclose to the franchisee what to expect upon signing the contract. Although a franchisor isn't allowed to make specific profit claims, they can provide franchisees with ranges for expected costs and profits and losses.
A Franchisor Disclosure Document will also detail how much support the franchisee is entitled to from the franchisor, such as how many visits per year you'll get from your field consultant and marketing representative and how to get in touch with these individuals. In other words, it will outline what you get in return for the fees and royalties that you pay to the franchisor, as well as how much you would have to pay for any additional training and services.
Image is Everything: Behind-the-Scenes Activity to Make the Brand Stronger
To guard their brand and ensure cohesion among individual units, a franchisor orchestrates a host of various activities behind the scenes and performs certain checks and evaluations at regular time periods. Although a franchisee might not always know when they are being audited for performance, their contracts generally outline the types of evaluations and how often to expect them.
Sanitation and Customer Experience Inspections
A franchisor might send mystery shoppers to the locations to get an overall impression of the customer experience. They may also have contracts with third-party companies that come in on a regular basis to check on sanitary standards of the establishment. Mystery shoppers don't identify themselves; they come in, receive service, leave anonymously. They later report to the company about their experience. Sanitary inspectors, on the other hand, will usually show up unannounced but introduce themselves at the time of appointment, perform their inspection, and then go over the results with the franchisee.
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Financial Evaluations and Peer Coaching
From time to time, a franchisor will also perform financial audits of the franchisee's location. A franchisor will typically review the franchise financial statements, such as the franchisee's sales reports and profit and loss statements. The franchisor then will use this information to compare the performance of a particular location against all others. They will go over food and labor costs, as well as profits and losses at different milestones. If a franchisor notices atypical expenditures, they will let the franchisee know and suggest some ways to scale those expenses down.
Alternatively, a franchisor might put a struggling franchisee in contact with the franchisees that are doing well, so the one can learn from the other. Successful franchisees are usually willing to help out their colleagues as a less successful location could reflect negatively on them and the brand as a whole.
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A franchisor not only acts as a mentor for the franchisee, directing them every step of the way and teaching them the best strategies for operating a business, but a franchisor's role is also to foster strong business relationships between the franchisees. This franchise relationship model leads to a stronger brand. Ultimately, by having the franchisees support each other and learn from one another, the franchisor is strengthening the brand as a whole.
Settling Disagreements Between the Franchisee and Franchisor
Although a franchisor and the franchisees stay in a close relationship during the lifetime of the contract, conflicts might still arise as franchisees might disagree with the franchisor on some operational or management aspects. When a disagreement happens, the role of the field consultant becomes crucial in mitigating the dispute. The consultant must support the franchisee on all matters, helping the franchisee succeed and building up the brand. At the same time, the consultant answers to the franchisor on how well the franchisee adheres to the brand's standards.
The position of a field consultant can become quite complicated during the times of contention since a consultant has to serve the interests of a franchisor and the franchisee simultaneously.
You Can [Not] Go Your Own Way
When a conflict arises because a franchisee attempts a different way of doing things than has been agreed upon, the consultant needs to enforce the guidelines of the brand while promoting the franchisee's commitment to the company. Even if a franchisee has a sound idea, it usually cannot be implemented at just one particular location, as it will disturb the unity of the brand. For example, a franchisee might have found a local vendor from whom they can purchase a higher-quality product for the same price as the franchisor's vendor. However, the franchisor is unlikely to approve it, as it might not be possible to distribute the same product to all the franchise units. Even if a franchisee found a more effective way of doing something, the franchisor won't permit the change unless it's possible to upgrade the whole franchise system.
Also, some ideas could change the image of the brand, although they might otherwise be quite reasonable. Your idea to diversify the menu of a burger joint and to add some Mexican food items might seem fun to you, but not to the franchisor, because it will alter the franchising concept altogether.
Ways of Resolving Conflicts
It is a duty of the field consultant to know how to manage franchise owners in a way that doesn’t belittle them. The consultant must help the franchisee understand why they cannot do things their way, even if their way works better and is more cost-effective. The consultant will need to help the franchisee see the bigger picture rather than taking offense and feeling controlled by the franchisor. This understanding on the part of the franchisee might be hard to achieve as they often begin associating themselves with their business and might not immediately comprehend why somebody else dictates to them how to run their business.
When the field consultant isn't able to persuade the franchisee to make the change, the franchisee might receive warnings from the company. The franchise authorities might visit the location to try to reason with the franchisee to stick to the protocol. If a franchisee completely refuses to follow the outlined rules and procedures, the disagreement might lead to license suspension or even legal action.
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Franchise Pivots and Changes
Sometimes, a company change is initiated by the franchisor. They might want to update the color scheme, create a new menu, or add on new products or services. Many of these changes will require substantial investments from the franchisee and they might refuse. To get the franchisees on board, a franchisor has to thoroughly plan the upcoming adjustments and effectively communicate with the franchisees. Any change will go much smoother when a franchisor involves their franchisees in the decision-making process. Letting franchisees know ahead of time about future changes will help franchisees prepare thoroughly and acquire the resources.
A franchisor will have higher chances of implementing changes with ease if they provide their franchisees with full support. The operation team needs to come in to negotiate the changes with the franchisee and to assure that they will get help from the franchisor throughout the process. Before the franchisee agrees to proceed with the proposed changes, they will likely need to know how much it will cost them, how much assistance they can expect from the franchisor along the way, and how much time they have to implement the changes.
It is also one of the franchisor's responsibilities to properly train the franchisee on all the operational aspects of the change if the franchisor wants their franchisees to succeed.
The Synuma Difference: Why the Right Project Management Tools Are a Game Changer
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If you've got this far in the article, you might feel overwhelmed by the number of responsibilities and multiple angles to consider when running a franchise. Even if you've been in business for a while, you might still be struggling. You may be wondering how to stay on top of the various functions of your company and have them work effectively with each other. The answer to this problem is to have the right project management system in place. You need a software tool that will synchronize and help you manage all business processes in one place.
With Synuma project management solution, for example, you can easily track and compare sales and other financial data for all your franchise units, as well as keep a close watch on their operations. The goal is to get each property to profitability as soon as possible. You can follow construction progress and phases of unit development. Your project management system needs to be flexible and customizable to your specific business needs. The right technology will make your daily operations easier, help you meet your deadlines, and stay within budget.
A quality software solution will fit seamlessly into your established business processes and provide you with industry and field expertise. It will provide you with tools for effortless report generation and communication among different departments.
Making Franchising Work for You
Franchising is an attractive growth opportunity for brands seeking expansion. For franchisees, it gives greater chances of business success. Although it requires a substantial upfront investment, franchising allows for a quicker business launch and smother growth curve. Franchisees get to take advantage of the franchisor's resources and their well-structured system, while franchisors benefit from franchisees' resources and efforts. Franchising also offers a great amount of mentoring and support all along, which is key for novice business people.
To avoid misunderstandings and conflicts, a franchisor needs to openly communicate all important information to their franchisees. Franchisees should perform proper research on the franchise they are considering before signing up to eliminate any unpleasant surprises. Franchisors should carefully vet potential franchisees through questionnaires, interviews, and background research. Opening a new franchise is a huge commitment from both sides. Both the franchisee and franchisor should be knowledgeable enough about the other to build a trusting, positive relationship.
For a successful franchise operation, both franchisees and franchisors need to understand the value of each other in the endeavor. A franchise cannot exist without its franchisees, and franchisees won't have their businesses without the franchisor. Although franchisors and franchisees might be after completely different goals, they can achieve them only by working closely together.