18/09/2018
HOW TO START A FRANCHISE
Make sure you understand the process, the costs and how long it will take – before you franchise your business.
Protect your Intellectual Property
What is IP? It’s the application of the mind to develop something new or original. IP can exist in various forms such as a new invention, brand, design or artistic creation. There are various types of IP available. IP is a valuable asset and should be strategically managed and protected. Some IP rights require a formal process of application, examination and registration such as trademarks, patents, designs, copyright (films only).
If you have a trade name, logo, or business logo that you want to use – or words letters, numbers, colours, a phrase, sound, scent, shape, picture, aspect of packaging or branding, or any combination of these – you should consider registering a trademark. The owner of a trademark has the exclusive right to use, sell or license it.
You should also protect the franchise business system, trade secrets, confidential information.
Essential Preparations
Set the strategic direction. Drafting a Franchise Plan – a business plan for the franchise operation – is essential.
Run a pilot unit. Piloting of the franchise should take place to optimise your product range, logistics, franchisor assistance and to develop the franchisee profile – and perfect processes, systems and procedures. The ideal would be to set up a new unit from scratch and run it separately from your core business. When your franchise network is established, you could sell the pilot unit or turn it into a ‘lab’ for developing new products, systems and procedures.
If you start a new business and would like to turn it into a franchise, it should extend over a period of 12 to18 months. Established businesses could complete this process within 6 months.
Develop the franchise plan. It consists of the operations manual, a confidentiality or non-disclosure agreement, the franchise agreement and the disclosure document – as well as a letter of intent which prospective franchisees will sign to indicate that they wish to purchase a franchise.
You’ll have to draw up a complete set of financials and a plan that shows the expected development of franchises over the next 5 years.
The following information should be included in a franchise plan:
Target areas for expansion: this would be areas with similar demographics to your pilot unit. You should also work out the projected number of franchise units to be established.
The franchise package: information about the costs of developing the package should be included. This contains your intellectual property and the practical knowledge relevant to your business, marketing and training materials and documents such as the operations manual, disclosure document and franchise agreement.
Recruiting and supporting franchisees: the costs of recruiting and supporting franchisees should be estimated.
Calculate the marketing fee: this can be a percentage of sales or a fixed amount.
Calculate the franchise management services fee – including your costs for developing the franchise package, recruiting and supporting franchisees. As soon as your franchise network has achieved critical mass – usually after 5 to 8 units are fully functional – you should show a profit.
Develop a detailed country development plan and franchise marketing materials. During this phase, you will need the assistance of experienced franchise practitioners. An experienced consultant will guide you through the entire process and provide the necessary documentation. Budget for between R400 000 and R600 000.
Professionals needed
Franchise attorney: The single most important professional that you will need – to prepare the confidentiality or non-disclosure agreement, the franchise agreement and the disclosure document as well as a letter of intent. The franchise attorney will also ensure that the disclosure document and the operations manual interface seamlessly with the franchise agreement.
Accountant: You’ll need an accountant with franchising experience – to review your financial projections and to ensure that they make sense.
Franchise practitioner: This is the most expensive professional – but franchising a business is complex and he/she will add substantial value.
Manual writer: Your operations manual should cover every aspect of your systems, procedures and processes. And a professional manual writer will make sure of this – and will present the material in a clear, appealing way.
Branding consultant: You’ll need to professionally design your company’s corporate image professionally designed and legally protected.
The operations manual: To be successful, your franchise business needs to be consistent – describing in detail how to replicate the franchisor’s sustainability and success.
The operations manual should – among others – contain the following:
A brief history of the business.
The corporate identity.
Detailed instructions on every aspect of operating and managing the franchise.
The manual and franchise agreement should not be inconsistent – with the franchise agreement detailing rights and obligations, while the operations manual sets out the process to ensure compliance.
Create your marketing materials: To attract quality franchisees, you need to create good marketing materials.
Contact us to assist you on this exciting journey.
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