FRANCHISE DEVELOPMENT: Pilot considerations and Franchise Package Elements

If we take a glance back at our recommendations by now you will have assessed the feasibility and the numbers are stacking up. If you followed the advice in the previous article you will be well into the process of formalizing your expansion plan by delving into the nuts and bolts of your franchise. As you get into the nitty gritty of the expansion plan you will also find that you may need to refine your financial projections a little further.

Once you have reached the point of completing a business plan for the franchisor and you have taken into account all the considerations we have outlined, it is time to take a step back and look at your plans for a pilot. At this point you should already have an existing business model in place. After all franchising is about rolling out a proven business model and not just a thought or an idea! Potential franchisees will consider buying into your business system because it is a “tried and tested” model with all the school fees having being paid and not just because it is a good idea that somebody dreamed up one night!

In many cases your existing pilot model may require refining as well as the implementation of new ideas before they can be applied to franchisee business units. The pilot should be used as a ‘testing station’ in order to refine all the processes and procedures. The more standardized your business model is going to be; the greater the effort that is required to ensure everything is correct in your current model. It is very difficult to fix systems later down the line once you have a number of franchisees on board.

For many reasons a business unit that has been in existence for many years may not be regarded as a suitable pilot model. Firstly, the banks will not view this as a pilot as the financial costings have not been tested – the set up costs 15 years ago will differ greatly from those required today. Secondly, the way the business has evolved may mean that systems and processes have just adapted and evolved over the years and thus may be outdated and are not necessarily the most efficient. Thirdly, we often find that businesses that potential franchisors regard as their pilots are very family oriented and thus not yet geared as an offering to third parties.

The considerations related to the pilot may not mean that you have to put a halt to your franchise plans or slow down your expansion plans. It is possible to be more aggressive in your development plans and run the pilot plan and the implementation thereof alongside the plotting of the expansion plan considerations and development of the package elements. If you choose to adopt a more conservative approach you may decide to do all the development work in the ABC of a franchise development package and then apply it to a pilot model. This pilot model may be a company owned business or it can be applied with the help of a “guinea pig” franchisee who is willing to learn alongside you, help with the development and then at a later date sign a then current franchise agreement. At the outset this franchisee may sign an agreement with you with the understanding that the model is still in the testing process, and in return you could waive the Upfront Franchise Fee or offer reduced Management Services Fees. It must be stressed that this arrangement is to be documented and it is to be for a defined period with no expectation that the discount will continue once the pilot period is over. Alternatively there may also be an opportunity for a joint venture arrangement.

As you tick off all the boxes required for sound development you will reach the last part of the process which involves compiling the documentation that forms the Franchise Package Elements. The Franchise Package is the cement that holds together the fundamentals of a successful franchise and all the input required for this will be gleaned from your development process and your pilot model. Without these elements that support this solid foundation the relationship that is to be built between the franchisor and franchisee will quickly crumble. As franchise development consultants we often get calls enquiring about compiling franchise agreements prior to the development work being completed. It can not simply be a cut and paste of the documents used for other franchised business system. This particularly applies to your Franchise Agreement which can expose you to the most amount of risk. This does not mean that elements of the Franchise Package Elements can only be started at the end – a document such as your Operations Manual can be started as soon as you start thinking about franchising.

Franchising is about compliance to a concept that works and the franchise package goes a long way to ensuring this compliance. It is a key aspect to consider for prospective franchisors when going the route of franchising their business, as well as for possible franchisees that are planning on investing in a franchise.

The franchise package should include the following elements:

  • An Operations Manual
  • Legal Agreements – The Franchise Agreement
  • Disclosure Document
  • Recruitment and Selection Programmes
  • Training Programmes

The tried and tested pilot model as well as the franchise package and all its elements form a fundamental part of franchising and all aspects of it must be in place in order to establish and build on a successful and prosperous relationship between the franchisor and the franchisee. Over the next few articles we will go into detail with regards the specific requirements for each of the package elements so that you are in a good position to “measure twice, and cut once”.

Lindy Barbour
Franchize Directions
www.franchize.co.za
(011) 803 0665 / This email address is being protected from spambots. You need JavaScript enabled to view it.