Australia’s enthusiasm for franchises continues to grow making a franchised business strategy one which is attractive to many businesses looking expand through this form of investment. It is a proven global model, which when set up correctly, can generate good profits for both the franchisor and the franchisee who invests in the business.
It is not a business model that is suitable for all businesses. A business capable of being franchised needs to have certain attributes if it is to work. Below are seven requirements identified from successful franchised businesses that we believe make up the core components of a successful franchise business.
Marketable
Is your business one which potential franchisees would wish to own? The appeal of your brand or product is what will draw the investment.
If the business is already well known and admired then it is easier to franchise. Businesses with a good reputation and a recognisable name or brand are prime concepts to become franchises. Encouraging investors to buy into a concept that desirable is easier than pitching something that is unheard of. Consider franchising when the ‘star is high’ not when the business is only just setting out or worse still, going through a difficult time.
Profitable
People go into business to make money. There can be other considerations (lifestyle, seachange etc) however the core driver for most business owners is profit. Consequently, a proven track record and good business financials are essential to encourage potential franchisees to buy in. No one wants to be part of a failing business empire.
Struggling businesses can of course be turned around and made a successful again. They are not however appropriate to launch as franchises.
Franchise businesses must be able to demonstrate good potential profit streams for those wishing to invest. The investor must be able to easily see the anticipate return on their investment.
Difficult to copy
Having a distinct brand, product or trademark that differentiates a business from its competitors makes a concept easier to package to potential franchisees. The ability to be associated with a successful product or an established brand attracts investors.
If similar products or services that are provided by others are clearly distinguishable from your business as either inferior or poor imitations, then this assists. This enables your business to demonstrate how the attempts of others to compete have failed, providing reassurances to potential franchisees as to the stability of you market.
Leadership
A strong leadership team is essential for most successful businesses. Individuals with the experience to know how to drive the business forward and to support the businesses franchisees provide confidence to those wishing to invest.
A successful franchisee business is reliant upon the reputation of the franchise company being maintained. This requires a stable senior leadership team.
Licensable
Ownership of the intellectual property and the ability to license the IP used in the business is essential for a successful franchise operation. Without a branded concept there is little for franchisees to acquire.
Equally, if the business has not taken the appropriate steps to protect its intellectual property then cannot share its systems procedures and know how with franchisees without taking the risk of losing the same. If the business concept cannot be protected then it cannot be franchised.
Understandable
One of the attractions of a franchise business is that they are easy to operate. Franchisees choose to acquire franchises rather than set up their own concepts largely because of the perceived ease at which the business can be operated.
Franchises are “off-the-shelf” businesses. They have the processes and systems in place to enable individuals with no previous experience of that business, to be successfully operating it within weeks of purchase. If the business is complex and requires the skill of the owner to operate, then it is not suitable to franchise.
Affordable
Franchises must be affordable to potential investors. If the business is too expensive for individuals to buy in then the potential market is limited even if the potential profits is significant. Although successful well-established brands can command higher fees (one well established burger chain can command a seven figure investment), they usually are able to do so through the combination having been established as leaders in the marketplace for significant time and can demonstrate consistent and long term profitability for their franchisees.
For a new franchise business, offering potential franchisees the ability to establish their own business at a reasonable investment cost is the key success.
If you believe that your business contains elements of the above, then give some thought as to whether you wish to expand by adopting the franchising model.
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Disclaimer
Ashbrooke Law publications are intended to provide guidance and general information. They should not be relied upon as legal advice. Formal legal advice should be sought on matters of interest arising from this article.