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The 4 Pillars of a Successful Franchise

May 26, 2022

As Richard Branson once said, “A big business starts small.” Franchising is one way for an entrepreneur to take a successful idea and create a global business empire.

Isaac Singer is widely credited with inventing the modern concept of franchising in the 1850s. Singer and his business partners sold the rights to sell his sewing machines to local business owners across the country (eventually internationally), as well as train those who bought the machines. The royalties earned from the license rights helped offset manufacturing costs, making Singer a household name and a very profitable business.

In order to make a franchise successful, there are numerous factors to consider. We've boiled them down to four main principles:

1. Operations

Is your management team, along with your franchisees, in sync on how to run the business? It’s crucial to have an operations manual in order to run a successful franchise/company. The purpose of the operations manual purpose is to organize, document, and communicate operational requirements, systems, and procedures for the franchisor and the franchisee. Consider the manual a toolkit or bylaws for the business. The operations manual explains how to carry out day-to-day tasks of the business to ensure uniformity in operations and customer experience. From personnel to bookkeeping to quality controls, the manual documents the entire franchise’s protocols and procedures to operate within the brand concept.

The ability of the franchisor to provide training, support, and an operating tempo to its franchisees both before and after the initial launch is critical to staying aligned with the brand and its success. Pre-launch access to the learning management system, franchisee engagement through forums, real-time business coaching, and benchmarking are all examples of operational support.

If necessary, do not be afraid to terminate a franchise that is not adhering to your brand strategy, not profitable or performing poorly within the system. Nobody goes into McDonald's and gets a different kind of hamburger. The experience should be the same with each franchisee. At all costs, defend your brand.

Pro Tip: Franchise disclosure documents should be reviewed once per year, thereby keeping all parties on the same page.

2. Sales

You franchise so you can quickly scale your business without various risks such as debt and employee issues, but you also franchise to make money through franchise fees, add-on fees, and royalties. In order to expand your franchise, you can hire a consultant or broker. However, the owner of a successful and profitable franchise unit is your best salesperson because they help you sell more franchises! As a result, your company continues to expand, resulting in increased cash flow. The more you build, the more people will come to see what your franchise has to offer, which will result in more sales. The most important lesson here is to take care of your franchisees; do everything you can to help them remain successful.

Your top performing franchisees are well-versed in the industry. They are profitable and pay royalties. They already have a vested interest in the health and well-being of the franchise brand. Who better to help the franchise system grow?

Pro Tip: Offer financial and other incentives to entice your best franchisees to open additional locations and grow their business.

3. Finance

It's critical to have enough cash to get your business off the ground and on solid footing before considering franchising. Unfortunately, some franchisors fail because they don’t account for various expenditures such as marketing, legal, accounting, and payroll costs. In addition to having a lawyer, you should also have an accountant with experience in the franchise industry since the business is audited once a year. This type of investment requires a lot of forethought and planning.

Before you consider franchising your business, you should have answers to the following questions:

  • What fees do you intend to charge, and how much will each amount to?? What percentage of the royalty fee can/should be charged?
  • How big will each franchisee's territory be?
  • In which locations will you seek to establish units?
  • How will your training program be structured? What method will you use to carry it out, and how long will it last?
  • What marketing strategy do you have in place?
  • What level of experience and capital will you demand from your franchisees?
  • Will your franchisees be required to purchase certain items from you?
  • What is your exit strategy?

Pro Tip: Make sure you have a detailed management strategy plan and are well capitalized.

4. Strategic Hires

The most important part of strategic hiring is investing in a strong management team and a rock-solid marketing team. These hires will allow you to maintain a constant focus on growth goals and company strategy.

Employees are a key factor in success, so attracting top talent is critical to the success of any business. With the right team in place, you can increase productivity as a franchisor while also providing the high-quality customer service and experience required to drive profitability to your franchisees.

Some people are better suited to franchising and your franchise model, and it is your responsibility to hire only those best suited to succeed in your business model. If you get this part right, the rest of the steps become much easier.

A purpose-driven hiring system can help reinforce a structured hiring process. Hiring efforts can be coordinated across multiple hiring managers and locations using the same process and job content. When running a franchise business, consistency is critical for maintaining quality and compliance.

Pro tip: Hiring experts in each area – operations, sales, marketing, and finance – should be your number one priority.

In conclusion, becoming an entrepreneur takes blood, sweat, and tears, but once you create a successful business, there are ways to increase its value through franchising. The process can seem tedious and sometimes overwhelming, but with a solid concept, strategic plan, seasoned management team, and enough capital, you can be well on your way to being a successful franchisor.

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William St. Clair

William St. Clair, Partner in the Private Client Services Group, and founded and oversees the Franchise Services Group at Eisner Advisory Group.

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