Power of a Well Designed Franchise System
The importance of a well designed Franchise System should never be under-estimated. For a franchise system to be able to scale, it must take into account the balance of the ecosystem between the franchisor and franchisee.
The Franchisor leverages franchise as a vehicle for faster and more systematic growth by sharing their brand and business know how. The franchisee buys into a franchise in order to leverage the brand equity and know how of the franchisor and to avoid the pitfalls of starting a brand from scratch. When there is an imbalance in the ecosystem, the franchise system becomes inherently vulnerable to threats that can destroy the franchisor franchisee relationship..
To build a sustainable franchise system, Franchisors need to fully appreciate the driving forces that make up a successful franchise organisation.
Begin your franchise system development with the following fundamentals:
- Franchise Valuation Development
- Commercial Terms (Franchise Agreement highlights)
- Franchise SOPs
Franchise Valuation Strategy Development
A robust franchise system serves as the cornerstone for your business’s sustainable growth. The franchise strategy should reflect your organisation’s goals while presenting relevant strategies and revenue streams.
Issues such as brand positioning, customer engagement, supply chain, resource allocation, risk analysis, adaptability and timely growth need to be considered at this foundational stage of strategy development. How your franchise strategy addresses these considerations will directly affect the business’ potential for growth through franchising.
Franchise financials should reflect the franchise system’s potential profitability both for the franchisor and franchisee. These should be well evaluated by the franchisor before embarking on the franchisee recruitment process. A good balance between franchisee and franchisor profitability can go a long way to ensuring good franchisor franchisee relationships.
Understanding where IP resides in your business is important as it has the potential to determine the overall value of your Franchise. It is important to understand how this IP should be exploited and how it can be reflected in your financial projections.
These refer to the franchise terms associated with the franchise. The franchise fees, franchise term, royalties, investment quantum and store fees are usually listed on this sheet and then further elaborated in a document that precedes the actual franchise agreement, known as the Franchise Agreement Highlights (FAH).
Standard Operation Manuals
The Operation Manuals are the backbone of the operational success of a franchise. By effectively documenting all processes and workflows and by covering topics such as management and operational aspects of the business, the manuals will minimise deviation from the standard operating process that makes the business successful. Often the Standard Operations Protocols (SOPs) include both Outlet Operations documentation and Franchise Management operations.