ICW

What is franchising?

Franchising is an innovative business arrangement that, when implemented properly, enables potential business owners the benefit from an established operating model, marketing and recognized name and corporate trademark. It allows the new business owner (Franchisee) to concentrate on building their business rather than starting from scratch. In exchange for these benefits, and for training and ongoing services, the franchisee pays an initial franchise fee and ongoing royalties (usually a percent of gross sales), and may be required to contribute to a national marketing fund as well. The franchisee also bears the cost of real estate, equipment, inventory and related start up costs.

In addition to the fees received, the franchisor gets the benefit of expanding its business and trademark without the investment of their own capital. The entire system generally shares in the benefit of increased buying power and name recognition as the franchise system grows.

Who are the "Franchisors"?

Franchisors are the companies that initiated the concept, systems, trademarks/intellectual property and operating model that is provided to the franchisee.

Why do companies Franchise?

Companies generally franchise to grow quickly and expand without raising significant capital. By expanding with other peoples capital (the franchisee bears cost of fees and start up) and harnessing their local market knowledge and energy, the franchise chain can develop rapidly. Another reason is people (one of the largest assets of any organization). It's always difficult to recruit, hire, train and supervise from a distance. Instead of employees the franchisor locates local business owners to execute its business model.

There are trade-offs for the franchisor. Their revenue is limited to the fees, royalties and possibly national purchasing programs which can provide significantly less revenue than if all units were company owned. They also give up control of their own concept, trusting franchisees to uphold their business philosophy, quality and brand.

10 Criteria for Choosing a Franchise:

1. Your Motivation

   : You will first need to determine the motivation you have and what elements are important. Finding the right franchise opportunity to fit your interests is key to meeting long term goals. Some franchise owners are motivated by lifestyle and others want to work hard at building a business and becoming a market leader. In the end, the best franchise is the one that fit's you.

2. Franchise Concept

   : Gain a clear understanding of the business model, market and overall concept. Who are the customers? How do you get sales? How does the model compare to competitors? Is the product or service directed at a growing market segment?

3. Market Demand

   : What is the demand for the franchise business? What size is the market? Is the growth dramatic, flat or declining? What changes are taking place in the industry? What is the forecast?

4. Background/History

   : How did the business evolve? When was the concept founded? Was the original focus the same as today? Has the economic condition altered the model? Does management show a commitment and have the talent for driving and helping to execute?

5. Company/Team

   : What is the company's experience level, both individually and collectively? Do they have the resources and vision to move the concept ahead?

6. Start Up Benefits

   : What initial services and training will be provided? Do they provide thorough training in both the classroom and field? Getting up and running can be stressful, a good franchisor will provide strong support through the initial phases.

7. Ongoing Benefits

   : Does the company provide ongoing benefits such as procurement programs, lead generation, health insurance, retirement programs etc. Will you benefit from these programs being offered? Does the value meet or exceed the program being offered?

8. Qualifications

   : How does the company describe their franchisee's profile? Are you a match? Do you have the experience or professional skills that may be required? Do you meet or exceed the stated financial requirements? It's important that you are realistic about your ability to finance and support your chosen franchise, even if you get off to a slow start.

9. Selection Process

   : What are the steps required to become a franchisee? The selection process should not be a sales pitch but rather a series of informational exchanges that help both sides determine if this is a good fit. It's important you know the process and timeline involved.

10. Reputation

    : What do other franchisees have to say about the company? Current franchise owners can be a good source of information. Has the company been able to sustain a strong brand reputation? Be sure this is the company you will be proud to represent.

Advantages of Franchising

There can be many advantages in investing in a franchise business, but it's not for everyone. And not all franchise programs provide adequate support. But there are some powerful advantages that can be gained by joining a quality franchise organization. Some include:

• You're not in it alone.

  Owning a business can be a scary thing, especially when you're just starting out or when you're struggling. Being part of a good franchise system means you are part of a community with a shared vision of mutual success and a wealth of experience. The experience and camaraderie of other franchisees can be just as important as the guidance from the franchisor at times.

• You don't have to start from scratch.

  A franchise may provide an established, proven product line or roster of services which already enjoys name recognition and favor in the marketplace. This can save you much time and money you would otherwise spend building awareness.

• Name recognition.

  Franchises may offer consumers the attraction of a certain level of quality and consistency across the system; with a good franchise, you will have a name consumers know and trust.

• Training, guidance and support.

  The best franchises offer extensive training, guidance and ongoing support in a number of important areas. Some of the advantages our franchise restaurant clients provide include:

• Proprietary Programs

  These can include:

  • Use of trademark/trade names
  • Use of proprietary recipes and procedures
  • Use of proprietary or customized management software
  • Access to an approved supplier and buying network
  • Use of a confidential operations manual and systems

• Help getting started

  • Site selection criteria
  • Off-the-shelf building designs & assistance
  • Buildout/construction guidance
  • Initial recruitment & HR planning

• Initial Training

  • Overall management training
  • Front-of-the-house procedural training
  • Back-of-the-house procedural training
  • Human Resource, Administrative and Financial Management Training
  • Marketing and customer service training

• Ongoing Operational Support

  • Field visits from operations and marketing representatives
  • Phone access to experts in each functional area
  • Ongoing consultation on key management and sales issues
  • Ongoing consultation on HR, staffing and operational issues
  • Commissary services (on occasion)

• Ongoing Promotional Support

  • Grand opening materials, strategy and assistance
  • Store marketing manual
  • Creative materials, including print ads, radio spots, etc.
  • In-store P.O.P. promotions
  • Access to library of up-to-date promotional graphics
  • Corporate website
  • Ongoing marketing consultation & ideas

• Ongoing system development (R&D)

  • Development of new products and procedures
  • New operational techniques
  • Product enhancement and/or vendor sourcing

• System wide conventions and seminars

  • Refresher training programs
  • System wide meetings and conventions
  • Regional meetings and seminars

Disadvantages of Franchising

• Loss of autonomy.

  Beware of the advertising hype in many entrepreneurial publications, with franchise recruitment headlines like "Entrepreneurs Wanted!" "Imagine the freedom! Imagine the opportunity!" and "Promote yourself to President!"

• We call it the BYOB!

  (Be your own boss!) marketing myth. Many franchise salespersons attract prospects with the promise of freeing them from oppression and giving them the chance to gain control of their lives. There's only one problem: Franchise systems are built on adherence, not independence. Franchisors want implementers, not rebels. They often recruit individuals who are yearning to break free from their harness, but as soon as the contract is signed the franchisor expects them to docilely slip into their harness. Requiring conformity, adherence to an established system and a shared identity is not a bad thing. That's what gives franchising its power. But you should know that when you sign a franchise agreement, you are giving up your right to call all of your own shots. There will be times when you must comply with rules or procedures you don't agree with. There will be times when you will have to adhere to procedures that may not be in your best interest. And you have to be OK with that. In the end, you must be confident that the franchisor will lead in such a way that is in your overall best interest, and be ready to be a positive team player even when it's difficult to do so. Be sure the benefits you're gaining are worth the loss of freedom.

• You could fail.

  Of course, you could fail with an independent business as well, but it bears pointing out. Buying a franchise is not a ticket to success. You have more tools, more guidance, and better blueprints, but it's still up to you to build the house.

• Your franchisor could go out of business.

  While it's not common for the franchisor company to go out of business, leaving profitable franchisees in the lurch, it's not unheard of either. Some years ago, the Italian Oven chain's franchisor declared bankruptcy, leaving the franchisees to fend for themselves. Some still operate as independent restaurateurs. In February, 2004, American Hospitality Concepts Inc., the parent company of the Ground Round Grill & Bar restaurant chain, filed for Chapter 11 protection in U.S. Bankruptcy Court in Boston, an action stemming from the sudden termination of financing by senior lenders. The franchisees rallied together and saved the chain, but not without much consternation.

• Your franchisor company could be sold.

  Many Ben & Jerry's franchise owners were drawn to the concept by the leadership style and social business consciousness of the chain's namesake founders. Many felt betrayed when the company was acquired by multinational corporation Unilever. Be sure that the benefits that drew you to your opportunity can survive a change of ownership.

• Negative publicity/shared tragedy.

  When food borne illnesses struck Chi-Chi's in Pennsylvania, every Chi-Chi's unit was negatively affected. Tragic shootings at one Brown's Chicken location cast a pall over every location. The flipside of positive name recognition is that your identity is tied to the rest of the chain in negative circumstances also.

• Payment of fees.

  In addition to the initial franchise fee, franchisees must pay ongoing royalties and advertising fees. You must pay these fees whether or not you are profitable. For this reason, you should be confident that the benefits you are gaining will more than offset this additional cost. In many cases, they do.

Franchising Evaluation Criteria

The International Franchise Association recommends considering the following factors before choosing a franchise opportunity:

• Costs:

  • How much money will this franchise cost before it becomes profitable?
  • Can I afford to buy this franchise?
  • Can I make enough money to make the investment worth my time and energy?

• Your Abilities:

  • Do you have the technical skills or experience to manage the franchise?
  • Do you have the business skills to manage the franchise?

• Demand:

  • Is there enough demand in your area for the franchisor's products or services?
  • Is the demand year-long or seasonal?
  • Will the demand grow in the future?
  • Does the product or service generate repeat business?

• Competition:

  • How much competition do you have, including other franchisees?
  • Are the competing companies/franchises well established?
  • Do they offer the same products and services at the same or lower prices?
  • Is there a specialty or niche you can capture?

• Brand Name:

  • How well known is the franchise name?
  • Does it have a reputation for quality?
  • Have any consumers filed complaints with the local Better Business Bureau?

• Training and Support:

  • What kind and how much training and support does the franchisor provide?
  • Do existing franchisees find this level of training and support adequate?

• Franchisor's Experience:

  • Has the franchisor been in business long enough to have established the type of business strength you are seeking?

• Expansion Plans:

  • Is the franchisor planning to grow at a rate that is sustainable?