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Smart
Franchise
Smart Business Book Series
Title Smart Franchise (Smart Business Book Series)
Author
Colleagues
Layout
Designer
Publisher
ISBN
Website
Master Steve
Somayeh Amiri, Tara Kamangar
Keyvan
Silk Road Publishing (Toronto, Canada)
Printed Book: 978-1-990236-19-8
EBook: 978-1-990236-20-4
www.MasterSteve.com
Note: The author of this book gives the right to use
the present content, provided that the source is cited,
to professors, educators, teachers, lecturers, and academic and non-academic educational centers, for an
indefinite period.
The copyright of this book is internationally registered
for the author.
Attributions:
Images Credits: upklyak / Vectorjuice / Freepik
Contents
Introduction ........................................................................................................ 5
Chapter 1: The Concept of Franchise............................................ 6
a) Definition of the Franchise.......................................................... 7
b) The Franchise Fee............................................................................ 7
c) Ownership of the Franchise and Chain Stores..................8
Chapter 2: Reasons for (Advantages of) Buying a Franchise....................................................................................................................... 10
Chapter 3: Challenges of Taking on a Franchise................ 18
Chapter 4: Reasons for the Growth of the Smart Franchise Start-ups .............................................................................................. 22
Chapter 5: Launching a Franchise................................................ 34
a) Primary Research.......................................................................... 35
b) Examining Your Advantages and Challenges Compared
to Competitors...................................................................................... 41
c) Deciding on Launching a Franchise..................................... 45
d) Financing........................................................................................... 48
e) Branding ........................................................................................... 49
f) Legal Issues....................................................................................... 50
g) The Cooperation Contract ........................................................ 51
h) Funding.............................................................................................. 59
i) Location of Branches................................................................... 60
j) The Branch Inauguration........................................................... 64
k) Applying Professional Forces.................................................. 65
l) Preparing Training Packages..................................................... 66
m) Marketing for Branch Sales.................................................... 68
1. Methods of marketing and sales of the branch......... 69
2. Branch sales strategies........................................................... 72
3. Vendees of a franchise branch .......................................... 73
n) The Business Development....................................................... 75
o) A Few Tips on The Business Franchise............................... 78
List of Tables
Table 1: the analysis of competitors ................................................ 39
Table 2: weighing advantages and challenges of your business ................................................................................................................. 43
Table 3: weighing advantages and challenges of competitors .... 43
4
Smart Franchise
Introduction
Many people would rather prefer to receive a franchise to
start a business so that they do not need to get involved in
issues such as branding, target market identification, and
customer acquisition, which are the main challenges for
startup businesses. This is because they think it is easier to
receive a franchise than to start from scratch. This method of starting a business has various advantages and fewer
risks.
If you intend to launch a Smart Franchise Startup, you
need information on how to effectively start and succeed
at that business.
As stated in my other books entitled "Smart Business"
series, the "smart" method is to have a comprehensive view
from different angles on each business topic and find and
select the best method according to your situation.
In this book, the franchise is explained to you with a
smart look. The questions include the following: what is a
franchise? How can one launch a smart franchise startup?

5
Chapter 1
The Concept of
Franchise
a) Definition of the Franchise
The assignment of the franchise means that the owner of
a business permits other people to launch a business with
the same name and specifications, work and service methods, earn money from it, and in return, s/he (the owner of
a business) receives a fee for the franchise.
b) The Franchise Fee
There are several ways to get the franchise fee:
The first
way
is to get the franchise at the beginning
The second
way
is to take the franchise as a withdrawal
The third
way
is a combination of the first and second
and in full.
from the sale over time.
methods. That is, an amount of money
is received at the beginning of the work
and a certain amount is also received on
a monthly or weekly basis - by agreement
- from the sale.
The Concept of Franchise
7
c) Ownership of the Franchise and Chain Stores
Franchise is another model
of chain stores that enjoy the
same management and ownership.
To increase the profits and develop
the business, chain stores usually decide to maintain the same type of stores,
only with the difference that the management of each store is left to someone
else. This method is literally called the
ownership-management; that is, the
store manager is also its owner.
The
difference
between
the
ownership of the franchise and a
chain store is that each chain store
has a manager who is paid and has
no direct ownership or interest in
managing the store. However, in
the franchise ownership, the store
manager owns the store.
8
Smart Franchise
The McDonald's owner, for instance, authorizes a person who
asks for launching a fast food shop
to operate under the McDonald's
name and, in return, pay for the
McDonald's brand.
You cannot rent a brand and work on
your own term – you must adhere to the
brand’s rules and mode of operations!
When you are given the right to use a
brand, you are required to act by the rules
of the person who owns the business franchise.
The reason for the growth of the
franchise ownership is that when
the customers visit a branch of a
store with a specific brand, such as
McDonald's, they expect to receive
the same services that are provided
in other branches. With this, irrespective of the branch of the brand
a customer enters, s/he gets the
same service and treatment.
The Concept of Franchise
9
Chapter 2
Reasons for
(Advantages
of ) Buying a
Franchise
The point of view of this part of the book is from the perspective of someone who is going to buy a business franchise.
A set of reasons makes people choose the franchise
method between buying a franchise branch and launching their own business. The main reasons for that choice
are the following:
When you want to launch a business,
you will face many problems that do
not exist if you launch a franchise business.
In the smart franchise startup,
you can start a business very quickly
and in a short time, without facing
complicated problems.
(Advantages of ) Buying a Franchise
11
You may need to spend a large amount
of money to start a personal business,
but in the franchise business, the cost of
buying the franchise may be more than
the cost of launching the business; however, if you consider it in the long run,
calculating the amount of the contract
that will reimburse you along the way, it
will be more financial to you to receive
the franchise.
Note
The risks and losses you may incur on your
personal business can cost you several times
as much as buying a franchise.
12
Smart Franchise
The main offices of franchise
businesses, offer you better purchases at lower prices because of the
greater number of branches and the
more relations they have in the market.
If you run a business like a fast
food shop for which you buy foodstuffs at a certain price, do not doubt
that you can never buy the foodstuffs you require as low as that of
a franchise business. It is important
that you maintain the same level of
quality as the other branches in the
franchise chain.
In fact, because you are in the
franchise business, you benefit from
buying cheaper in another way.
In addition to buying at a lower price,
marketing and advertising cost is significantly reduced or even eliminated in
the franchise because it is in charge of
the central office.
(Advantages of ) Buying a Franchise
13
In the process of launching, and
running a startup and a business,
you need to go through different
stages and do various paperwork,
while getting a franchise is an easier task because the part of business
startup steps are already done and
the standards are pre-determined.
Therefore, you have far less paperwork to do.
When buying a franchise, you are required to comply with standards that have
already been determined for the location
of the business and, this way, you are less
likely to choose the wrong location.
There are three things to consider
when launching a business: location, location, location!
Note that nothing can be more
important than the location you
choose for your business.
14
Smart Franchise
In the franchise method, you can
take advantage of the knowledge of
the head office to select the location
because the head office has enough
experience and has already paid
for the wrong choices. But a person
who intends to start a business does
not have enough knowledge on his
own.
The knowledge that is passed on
to you in the franchise business
will prevent you from losing.
In a franchise, you are not involved
in the contract for life, and the contract
duration will give you a choice to extricate yourself from the business or keep
it up.
(Advantages of ) Buying a Franchise
15
The franchise has an ongoing education system; from the beginning
of the path of the business startup,
you will be trained and supported throughout the work. Based on
all the mistakes, knowledge, and
information s/he has gained over
time through establishing various
branches, the business franchisor
trains new branches from the beginning and monitors them along the
way to take the right way.
When you start your own business, you may use different training
classes, but these classes are more
theoretical and you still do not know
how to put the methods into practice. On the way, there will be problems in the business that may incur
huge costs to solve.
When purchasing a franchise,
you will always enjoy the experience and tutorials of the head
office.
16
Smart Franchise
In starting a business, precise quality
control with the clear timing is not always an easy task. But the franchise management system, with multiple trainings,
performs quality control as a network
and it facilitates this process.
In launching a personal business,
in addition to the high expenses,
branding will be time consuming
and difficult for you, but in the
franchise, you are backed by a large
company with professional advertising tools and standards.
By taking on a franchise, you
will enjoy the branding benefits of the franchisor.
When you start a smart franchise business, for example, a
McDonald's branch, you will actually benefit from advertisements of the whole brand collection and you compete with
a large number of people who work independently in the
same type of business; however, in the power competition,
you have the upper hand because you are supported with
years of experience and expertise.
(Advantages of ) Buying a Franchise
17
Chapter 3
Challenges of
Taking on a
Franchise
There are several challenges for a person who wants to
franchise a business:
The person who runs a smart franchise startup does not own the business.
Although the individual is the owner
and manager of the business, he is the
owner of the place whose rules and regulations are set by another. This means,
even though the manager controls the
business, s/he does not have total autonomy to set the rules or determine how
the company will operate. Therefore, the
person has less action independence. In
addition, there is a large set of rules that
restrict him.
Notice
The individual who owns/manages a franchise business must act according to the
franchisor's rules and regulations.
Challenges of Taking on a Franchise
19
If something strange happens to
the whole set of the franchise business, it will affect you and you will
share in the aftermath effects of
that bad event.
Plenty of franchised businesses
attempt to make these flaws less
visible because these disadvantages
can be effective on the sales of their
branches.
Receiving a franchise imposes a permanent cost on you.
Although
you
pay
the
principal
amount of the business franchise at the
beginning of the work, the franchise
agreement must be renewed from time
to time and some fees must be paid, depending on the agreements made with
the franchisor.
20
Smart Franchise
The amount paid as a down payment on the franchise is usually
non-refundable, which means you
will not be refunded if you do not
succeed for any reason.
However, for buying a franchise,
there will be a multiple-page contract with certain obligations that
you must fulfill. Consider these
disadvantages and decide how you
can manage it, and when it comes
to selling your business, reduce
these issues to a minimum. Understanding this aspect of franchise
and knowing how to manage it will
help you succeed with your business.
Challenges of Taking on a Franchise
21
Chapter 4
Reasons for the
Growth of the
Smart Franchise
Start-ups
In this part of the discussion, we change our viewpoint and
assume that you are in a position where you want to cede
your own set of franchise.
From the franchisor's point of view, we look at a set
of reasons why the world of smart franchise startups has
grown so much compared to chain stores;
First, the return on investment in the
franchise business is rapid.
Suppose a store or brand has 200
branches. Calculate what capital is required to run these 200 branches; but
in the franchise method, the head office
does not invest such capital at all. That
person owns 200 branches, but virtually
he owns the capital of these 200 branches. In fact, 200 different investors provide this capital, create added value for
the company and make its brand. These
all happened totally without direct capital.
Growth of the Smart Franchise Start-ups
23
There is a popular term called (R.O.I)
or Return On Investment. In the franchise method, the return on your investment is much more than the amount
you invest for starting a personal business, because you create the conditions
for others to invest in it.
For example, you expected to set up
100 branches and each branch would
pay you $1000 a month in profit, which
would totally be $100000. In the franchise business method, you receive the
same $1000 profit, without investing
any money in these 100 branches. Suppose you make $500 instead of $1000
and $50000 instead of $100000. On
the other hand, if you had to establish
those 100 shops yourself, how much
would it cost you? Consequently, you
realize that in franchising, the return
on investment and the profit are fast
and high compared to the amount of
investment.
24
Smart Franchise
Second, in franchising, the risk
is minimized because of the investment method. This means
that your business is growing,
developing,
and
has
different
branches yet your direct capital is
not involved.
If something happens to your
business at any point, it is destroyed or shrunk, the risk will be
spread to a large number of people who are the business managers/owners, and all of the loss will
not directly affect the head office.
In the business franchise world,
there are various cases that fail,
but the amount of money which
people may lose is much less compared to the state where the entire
loss encompasses one person. This
means
when
a
sole-ownership
business fails, the only person that
is primarily affected by the loss is
the business owner.
Growth of the Smart Franchise Start-ups
25
Third, in the franchising, obligations
and responsibilities do not refer to the
original owner solely, but they are divided.
All branches of the business franchise
would sign lease or purchase agreements.
Imagine if you rented 100 branches from
100 owners, what obligations would you
have, compared to the case where 100
owners were in contract with 100 people
and these obligations were not directly
related to you. It is clear that in this case,
the obligations of the head office are reduced and it is not in contract with a large
number of owners.
Also, because each branch has a different management, routine responsibilities
of individuals are minimized. Suppose
the responsibilities of the branch complex are to lie with the head office and
a large number of staff are employed by
the head office. In that case, there will be
a great employee-worker commitment.
The margins of employee-worker issues
are enormous, but in a smart franchise
startup, it does not simply encompass
you as the head office, and it is distributed across the branches. In fact, in the
franchise method, the executive affairs
of the head office will make a shorter list.
26
Smart Franchise
Fourth, the growth rate of a
smart franchise start-up is faster
than a chain store's growth rate.
In a franchise, a large number
of people own a business in some
way, even though they own and
manage it on a temporary and contractual basis, they still own the
business and because of the benefits they have, they attempt to get
their business grown and, in fact,
the business grows, without having to hire new employees in the
set. Each branch has its staff and is
managed by them.
Fifth, the more experience the employees and managers of the sets have
in business, the more they can apply it
for the growth of their business, and this
issue, can cause the growth of the smart
franchise startup.
Many people that who work in chain
stores or other stores will leave the set
for personal gain if they are offered a
better job position, but in the franchise
Growth of the Smart Franchise Start-ups
27
method, people will not leave the job because they consider themselves to be the
owner of the property somehow. This
gives them more confidence in their
own peculiar situation, and in this case,
managers will become older, and their
longevity and experience will strengthen the foundations of the business.
Each branch has its own manager-owner; therefore, it attempts to offer
the best representation and attract the
highest money. This person is indeed a
part of the collection, but s/he thinks of
making more money and, in practice, s/
he would help the whole collection, too.
Sixth, you are not alone. Any
changes or efforts you may intend
to make, there will be plenty of people with you who can help you grow
your business in the marketplace.
The
cooperation
of
branch
managers-owners can reduce the
cost of changes. McDonald's, for example, has launched a new ordering
system that allows people to register
their orders without queuing and
just through specific devices. Mc-
28
Smart Franchise
Donald's needed to spend a large
amount of money to customize
such a system in its branches, while
now it announces to all its branches
that they have to have such a device
and pay the head office to have the
device installed for them. It even divides the software cost between its
branches and receives it from them.
In fact, to buy this system and install
the software, it has to be paid by all
the owners-managers. On the other
hand, the credit of doing an interesting job goes to the McDonald's
brand! But the value of its innovation refers to all the branches.
Another example of McDonald's is
that it changed the decoration of the
branches some time ago. The cost of
decoration is high, but all branches
virtually did it over a period of time.
You may only see the whole growth
of McDonald's, while it does not pay
for its own growth out-of-pocket,
and the cost is distributed across all
branches. Furthermore, many people from the set of branches would
accompany the implementation of
the program and help promote it.
Growth of the Smart Franchise Start-ups
29
Seventh, branding is easier in the
franchise method.
Branding means viable reputation;
it is a remarkably time consuming, prolonged, and arduous task. Additionally, there were plenty of businesses that
spent large sums of money on the market, but ultimately they could not make
a brand.
In the franchise method, the branding
speed is much faster. There were quite
a few businesses which spent a large
amount of money and advertised their
product for some time, but this period
was short and after that short period, no
more the name could be sustained.
In the franchise method, the first
step, which is presence and visibility in
the market, is easily taken because of the
large number of branches; that is, branding is simply made, and the further it
proceeds, the more permanent the presence of branches would become, and
consequently the reputation or branding is made for the business franchise in
practice, which is not usually so easy in
other businesses.
30
Smart Franchise
Eighth, you can benefit from
the
advertisements
that
run
throughout the franchise business
system.
In the business world, advertising is an important program, but
in practice it is not cheap at all and
it is also difficult to manage. In the
franchise, a fixed percentage of
sales is deducted daily or monthly basis for advertising rights; that
is, apart from the amount of the
franchise, an amount called the
advertising fee is officially taken
from the branches and it is injected into the advertising system of
the whole set and everyone will
benefit from it.
Growth of the Smart Franchise Start-ups
31
Ninth, in the franchise method, because of the superior position created in terms of branding, geographical
growth is much faster and easier. On
the other hand, you can be much more
successful in negotiating the sale of the
branch.
In Dubai, for instance, you can see
types of brands from around the world,
but Tim Hortons in Canada which is the
largest coffee shop chain franchise was
not located in Dubai at all because their
policy was to operate simply in Canada
and part of the United States. When they
decided to open a branch in Dubai, despite the great cultural differences, they
could easily advance the deal and get the
vendees to accept their terms, in the initial explorations and negotiations, and
the vendees would also establish dozens
of branches in a small city like Dubai according to the terms requested by the
franchise owner.
32
Smart Franchise
Tenth, the bargaining power is
dramatically increased by the franchise method.
Another advantage of the franchise is that you gain the power to
negotiate, because, in this way, you
face the owners of shopping malls
and managers of real estates and
passages. They are not willing to
give their place to others so easily.
The first class of people that would
accept the offer of this type of business is shopping malls, supermarket or large passages. The trust that
these people have in franchises is
not comparable to anything else,
and when it comes to competition
between two or three groups, property owners basically prefer the
other side to be a franchisee.
With regard to what was mentioned, if you own chain stores,
you may think of a formula to turn
branches into franchises. The following is the path you must take to
achieve that purpose.
Growth of the Smart Franchise Start-ups
33
Chapter 5
Launching a
Franchise
a) Primary Research
If you hope to launch a fast food store or an online store
and turn it into a franchise, you must understand and
know all the points mentioned in this book. However, you
must maximize your knowledge of the market and business before that could be done.
Like any other business, if you must have a great franchise network, you must deeply research the market. Explore different topics related to the market and competitors to achieve information in that regard; study what is
happening in the market; the people in the market; and
how they provide services.
Primary Research
35
To find out what is going on in your
intended business guild, attempt to
find the answers to the following ques-
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
tions:
How attractive and marketable is your intended
business?
How much can you plan on that business and rely
on it?
How productive can the activity in that business
be?
What is this business's size and capacity and how
much are the transactions and financial exchanges
in that business?
Who are the customers of that business?
Who are your competitors in that business?
Note
By explorations, determine the geographical
scope of your activity. Of course, in the franchise world, you should not despise your little beginning. Do not be afraid to enter the
game from a smaller geographical scope,
with time, you will grow little by little.
36
Smart Franchise
In your investigations, divide the
competitors into two parts: franchise
businesses, which are your direct competitors, and independent businesses.
¾ In your intended area, the independent businesses:
ƒ How do they work?
ƒ How successful are they?
ƒ What market share do they have?
ƒ What services do they provide and how?
¾ Consider and examine franchise competitors, too:
ƒ What style do they have for their work?
ƒ How do they accept the branch requests?
ƒ What are their sales and trading methods?
ƒ With what percentages and amounts do they
work with the vendees in the branch sales? What
is the approximate amount of their transactions?
ƒ How many branches do you have in your area?
ƒ What parts of the area are these branches located?
ƒ How do they deal with the owners of the property that they bought or rented?
ƒ How successful are they in the branch sales?
ƒ How much do they spend on their advertising
campaigns and how do they run them?
ƒ What kind of training do they have?
ƒ What are they teaching at their training
ƒ Who do they train?
Primary Research
37
¾ In your initial market research, at-
tempt to find and investigate your
competitors' training packages.
A franchise business training package includes the defined specifications, standards, and information according to which branch can launch a business by purchasing
a franchise.
¾ By being aware of your competitors' training information, you can both recognize what they are training and be more successful in standardizing your
training packages by observing their work.
¾ Do not forget that your competitors have encoun-
tered multiple problems over time and have learned
different things in that way.
¾ The franchise power can be felt when the custom-
ers enter through the door, where everything seems
familiar to them. The services that are going to be
offered -from the initial greeting to the presentation
model of the menu and ordering- are what they expect to receive from other branches.
Therefore, the most important part is teaching
the standards of a franchise to the people who will
provide services; both branch managers and employees should receive a set of training to create coordination in service delivery.
38
Smart Franchise
¾ Coordination of supply is a good reason for existence and success of a franchise, and you must design and prepare this in your training.
Write all the points mentioned above in a table
like Table 1 for all your competitors. Depending on
the type of business and the important information,
you can write quite different things in the table.
As an example, the first line is filled in for a hypothetical competitor to get you to learn how to record
the research results about your competitors. Your table may be different from this one, and you consider
other items in the columns, too.
Competitors
Number
of
Branches
Market
Volume
Average
Monthly
Sales
Franchise
Franchise
Training
Terms
Fee
Packages
 The
minimum
area of the
 Instructions
property is
for working
500 square
with
meters;
Competitor 1
equipment;
 Exclusive
57
15%
$300000
possession
$ 50000
or a 5-year
 Dealing
with
customers;
lease;
 Designing
 The lowest
stores;
education
 ...
level accepted
is diploma;
 ...
Competitor 2
...
...
...
...
...
...
Competitor 3
...
...
...
...
...
...
Table 1: the analysis of competitors
Primary Research
39
In the primary investigations, make
a list of startup costs in your geographical region because the cost of starting
a business varies from place to place in
the world, even from city to city within
a country. The franchise is no exception.
Therefore, investigate to find out what
expenses you might be faced.
Note
Experience will be gained over time and
there is no doubt in it, but by exploring and
gathering information and preparing a table
of research results, you will achieve a vision
that enables you to evaluate your specifications.
40
Smart Franchise
b) Examining Your Advantages and Challenges
Compared to Competitors
¾ Consider your advantages over competitors and compare your disadvantages and problems with them.
¾ First, make a list of the advantages
and challenges of starting a business
franchise, and list them in a table
like Table 2.
ƒ For example, you are more suc-
cessful than your competitors in
terms of advertising and providing
services or, in terms of location of
branches, you may have access to
places where your competitors have
not yet reached and those areas are
still untouched, so you can establish your own branches there. Write
down what you think is an advantage for your business in the table.
ƒ In the category of challenges mention, problems such as your low initial capital, your unknown and new
brand, and whatever you think can
be a challenge for business.
Your Advantages and Challenges
41
¾ It is insufficient just to list the ad-
vantages and challenges, but you
need to assign a weight to each case
according to the importance and
impact it has on your business.
Your assessment will not be valid if you regard all the advantages
or challenges as equally important.
For instance, lack of capital and low
advertising are both challenges, but
the negative impact of lack of capital in your business can be several
times greater than low advertising.
Therefore, you can give a weight
or a factor of 9 to the lack of capital
and a weight of 3 to low advertising.
Similarly, you can assign a number
from 1-10 as the weight or impact
factor for all items in the table. Consequently:
ƒ In the first column, write down the
list of advantages.
ƒ In the second column, write down
the weight or impact factor of each
advantage.
ƒ In the third column, write down a
list of challenges.
42
Smart Franchise
ƒ In the fourth column, write down
the weight or impact factor to each
challenge.
Weight of
Advantages
Challenges
Advantages
Weight of
Challenges
Expert Force
50
Lack of Capital
90
Location
80
Lack of Advertising
30
New Technology
40
Lack of Experience
50
Table 2: weighing advantages and challenges of your business
After making Table 2 in accordance with your business, make
Table 3 for competitors. This is
same table as Table 2, except that
here you examine every advantage
or challenge that competitors may
have. According to the method
aforementioned, weigh each item
based on its importance.
Advantages
Weight of
Advantages
Challenges
Weight of
Challenges
Experience
4
Old Technology
6
Reputation
7
Traditional Managers
3
Capital
5
Limited Access
8
Table 3: weighing advantages and challenges of competitors
Your Advantages and Challenges
43
Look at the list of advantages and
challenges of your business and see
what section of the table is more
weighted.
Look at the table of competitors'
advantages and challenges; if the
two weights of advantages and challenges are on the same level, the
situation is not bad. If the weight
of challenges is heavier, your risk
will increase; therefore, you need
to find out the extent of difference.
Most times, you decide to enter the
market and think because of your
communications, experience, etc.,
you can manage everything; but if
the weight of challenges is so great
that you cannot keep the balance,
you should be afraid.
List the specific advantages you
have over your competitors in the
benefits section to help balance
them.
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Smart Franchise
c) Deciding on Launching a Franchise
Based on the comparison you made in the previous
section, you know whether you should enter the franchise
game at all or not. By analyzing the previous tables, you
will reach four different scenarios;
The
First
Scenario
Most of the times at the end of this
decision you may decide to launch one
or two branches or you do not enter the
franchise at all.
The
Second
Scenario
Most of the time, by examining the
table, you may recognize that you can
enter the market and there are various
factors in your favor. Then you set up
the smart franchise startup.
The
Third
Scenario
Enter the game and leave the franchise
The
Forth
Scenario
Start the work and then move on to the
plan for the second step or development
phase.
direction you can later consider that
works as a franchise, but it takes a long
time to be done.
Deciding on Launching a Franchise
45
If you choose a scenario to enter the franchise business,
find the answers to the following questions;
ƒ Is it really possible to sell a branch?
ƒ Is your business idea really attractive to sell it to
others?
ƒ Will it be possible to sell one or more branches in
the desired geographical area or not?
ƒ Can your business be copied?
ƒ Does this business have the potential to establish
multiple branches?
ƒ Is it easy to make a profit after investing or not?
Your idea is to start a hardware store, for example; think
about these questions: can it be copied in different parts
of the city? How easy can you copy it and set up different
branches?
To answer any of the above questions, refer to your research results and find the answers based on the information you gathered.
Note 1
When you are looking for a business franchise, i.e., a branch sales, you must be able to
prove to the vendee that it is profitable with a
regular standard.
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Smart Franchise
Note 2
To franchise your business, you need to
make your customers feel that the head
office and you are one hundred percent supportive.
Based on your research on your competitors, you
can conclude that in supporting branches you are better, or at least similar to them, compared to the competitors.
In the last few years, several companies launched franchise businesses. Because of their wide experience in
that field, initially they were able to sell 10-20 branches
to different people. However, when they could not provide good support services, they had trouble selling the
next branches, and their franchise business actually went
bankrupt.
Deciding on Launching a Franchise
47
d) Financing
¾ The franchise's appeal is that you do not invest your
capital, but this does not mean you do not need capital. Like any other startup in the business world,
and even more than a typical startup, the franchise
requires capital. In a business plan financial review,
you will find out how much capital you need.
¾ In the research phase, you have already reached an
estimate of the costs required to launch the franchise. At this level, consider how you can afford
those costs.
Notice
Assess your required capital and financial
resources carefully, and then take action.
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Smart Franchise
e) Branding
When you decide to launch your own business franchise
and specify how to fund it, it is time to register a brand and
make a brand; that is, registering a company, registering a
name, registering an internet domain, and commercializing names in the geographical area where you are going to
work.
¾ If you have a long-term plan, you need to register
your brand internationally from the beginning.
Before entering the market, settle all the registration matters afoot and rearrange your brand over
time.
¾ Specify the design of branches, advertising slogans, and logos; how are you supposed to be seen?
What colors will be your color? What are the specifications you are going to come to the market
with?
Notice
For each of these actions, seek the help of
relevant, especially professional franchise
experts, to assist you along the way and
advance the activities.
Branding
49
f) Legal Issues
¾ In the franchise world, you need to have an attorney
for legal issues; from the very first step you want to
set up a business franchise and create its structure,
you need an attorney to accompany you at all stages.
¾ You can work with a group of attorneys or a company that takes responsibility for your legal affairs.
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Smart Franchise
g) The Cooperation Contract
Prepare a complete, professional, and
comprehensive contract set that is an
agreement between the branch vendees
and you. To do this, ask your attorney to
prepare a franchise agreement for you.
Notice
Without concluding a professional and robust
contract with the individuals who buy the
franchise from you, you will face several
problems. As long as this business is controlled and has its own standards, it can have
side effects and disputes.
With a strong contract that takes
all the rules, policy and regulations
of the country, province and even
city into consideration, you can easily resolve potential conflicts between
the vendees of the branch and you.
Notice
A large number of urban laws can affect your
business and make you lose in the courts.
The Cooperation Contract
51
The financial relationship between
the branch vendee and you is one of the
most important things in the contract
that should be transparent.
For example, you will receive an initial payment as the salary and credit that vendees have to pay for using
your brand. You will also receive an
amount as a management fee, as well as
an amount as an advertising fee. All of
these cases must be clearly stated in the
contract.
To clarify financial matters, some of
the things you need to make clear in the
contract include the following:
¾ As the franchisor, how much mon-
ey must you receive as the franchise
fee from branch vendees?
¾ What is your approach to grant a
franchise?
¾ What products will your contract include?
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Smart Franchise
Another issue in the contract is
its duration. Some contracts are
shorter and renewable and some
are longer, for example; depending
on various factors, you can conclude a 5-year renewable contract
or consider more or less time.
Note
Determining the duration of the contract is up
to you. The important thing is to specify the
time of the contract to avoid later conflicts.
The Cooperation Contract
53
The next important issue in the contract is the ownership of the name and the
set of property belonging to the franchise.
The franchise agreement must specify
that the brand name belongs to the franchise but not to the branch to restrain it
from having an opinion on it or abusing
it for any reason. For example, no one can
claim in any court that "I have had this
branch for 50 years and I own its name."
Notice
In the branch sale contract, it should be mentioned that all intellectual and non-intellectual rights and the ownership of this
collection belong to the head office.
In the contract, specify how
much the franchisee has the right
to provide a property; is s/he allowed to rent or buy the property
or be done under the head office's
direct supervision?
The specifications of the property considered to start a franchise
business must also be clarified in
the contract.
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Smart Franchise
Another issue considered in the contract is the provision of raw materials
and purchases for the branch.
It should be clarified whether a branch
is allowed to make some purchases independently or even if it needs water, it should
be supplied by the head office and all
branches should follow the same standard.
Some franchisors allow branches to
obtain some raw materials from elsewhere, but some of the raw materials are
supplied by the head office. At McDonald's, for instance, there is almost nothing
a branch can provide from other sources,
and the head office supplies everything.
The next issue related to franchise contracts is the confidentiality; the contract should principally
be concluded between two parties
and should not be revealed to any
other person or competitor. In fact,
the contract is part of the rights of
the franchisor and the copyright,
the terms of which should not be
revealed anywhere.
The Cooperation Contract
55
The next issue is the credit guarantee
that is taken from individuals. Sometimes, the people who buy the franchise
get a company involved and that registered company buys the branch and
there is no individual responsibility, but
the legal responsibility of those companies.
Note
To protect themselves and increase the
branch owner's responsibility, the smart
franchise startups also would use the individual credit of the person to make him/her
responsible and personally accountable if
there were a problem, and the responsibility
is not solely assigned to the company.
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Smart Franchise
The contract explains the accounting system and its form and
method. These explanations include: how long should the information be stored? How and where
are the accounts kept? Furthermore, the information must be inspected by the head office.
This clause of the contract discusses various software in accounting systems, the collection management method, funds, etc. The owner
of a franchise would specify what
software is allowed to be used or state
that the head office will provide it.
The next thing that should be mentioned in the contract is that the employees of each branch are the employees of
the same branch and are not considered as
direct staff of the head office; at the same
time, each branch must diligently observe
the rules and regulations set by the head
office about employees. The branch must
ensure employees are hired in accordance
with specifications set by head office.
The Cooperation Contract
57
Devise a mutual agreement beside your contract based on which
the parties can reach a common
understanding. The provisions of
the agreement depend on the circumstances of the countries and
provide an overview of the business
and its specifications, the amount
of money that the branch vendee
must spend and the general rules.
Meanwhile, over a period of time,
the head office also can examine
the decision to sell or not sell the
branch.
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Smart Franchise
h) Funding
¾ After the subject of the contract, investigate which
group, bank, and collection you can negotiate with to
provide the head office loans and branches for you.
¾ One of the most important steps in selling a branch
is to agree with a bank group to provide a portion of
the branch capital as a loan for the branch vendee.
¾ Therefore, within the geographical area where you
work, start negotiations with the sponsors and agree
with them that part of the capital is provided from the
agreed banks for those who intend to buy the branch
from you in the form of loans. If your business plan
is attractive to people, achieving these agreements is
easy. This is because the sponsors will take you seriously and fund the investment by providing a portion of the capital in the initial stage of the startup.
Funding
59
i) Location of Branches
Specify the exact location of your business:
ƒ What is the size of the business location?
ƒ What geographical locations are important to
you? Is establishing a branch in shopping malls,
outdoors, on narrow avenues or on wide streets
or between roads and out of town the best for
you? Each of these places is different, so they will
have different features and specifications.
ƒ How should the design of decor be based on the
plan, business model, services, and products you
offer?
ƒ What is the distance between a branch and the
next one?
Suppose you receive five different branch
purchase offers in an urban area. Does your business have the capability for establishing 5 branches in that urban area? To answer this question, be
realistic and carefully assess the current demand
for your products or services.
Anyway, your business model will determine this decision. If there were enough demand to create five new branches in an area,
you would sell five branches, but the point to
consider is how much distance is there between the two branches? For example, having
one branch inside the shopping center and another in the outdoor, with a short distance, is
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Smart Franchise
possible. But if both branches are to be on the
street side, you need to determine the distance
between them. Decision making is based on
population density and specifications of the
geographical area, the street traffic, and the
type of services you offer.
ƒ The next issue associated with the location is
to purchase or rent a property. The majority of
franchisors start with renting to reduce the risk
and then they move on to purchasing. Some people have a purchase strategy which is a kind of
revenue for them.
The value of a franchise or chain store depends on the property they own. The people
who can afford to buy the property have a
clear idea that their property is valuable and
they will purchase the property right from the
beginning. Most of these purchases are made
with banking capital and loans. Overtime, instead of paying rent, they pay a monthly installment, and their property values enhance
over time.
If you are confident in the decision you make,
create added value in the long run by purchasing
a property. Sometimes you cannot purchase the
property, because it is located in shopping malls
and passages or office buildings that are not sold
at all. In that case, you have no choice but to rent
the property.
Location of Branches
61
Sometimes large companies would purchase
the property, but charge the franchisee for the
rent amount. The brand owner owns the property. This way, his/her franchise business grows
and it’s the brand’s position in the market is
strengthened.
Note 1
One of the best ways to grow a franchise is to
have a fixed physical location so that people
can always see your sign in a specific place.
This will make branding easier and create
added value to the franchise.
When I cross every street, without thinking, I remember at which crossroads, I saw the McDonald's
branch five years ago and I am sure it will be there for
another five years.
Note 2
If you are going to rent a property for your
business, sign the contract for five years or
more on average so that the landlord cannot
easily take it back from you.
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Smart Franchise
Therefore, in rental contracts, make strict
contracts that:
9 First, they are long-term.
9 Second, maintain your authority that whatever happens in the future, you will be involved
in. Because you have the franchise, you can
speak with power.
Big and small property owners tend to work
with franchises because the franchises can both
pay the rent conveniently and create added value
to the commercial property.
In commercial real estate transactions, the
first question a landlord may be asked about is
who the tenants are. Suppose all or some of the
tenants own franchises. In that case, if the usual
price there is $5 million or $10 million, for example, it will be $15 million because it is guaranteed
that the business will generate revenue and have
regular customers.
ƒ When you are in search of a location, consider
the location of competitors. In your initial mar-
ket research, consider whether you really want to
be in a place where your competitor is conterminous with you or you prefer to stay away from it.
ƒ In malls that are very active and crowded, pres-
ence of several competitors helps to make it
crowded, rather than being a detriment to those
who work there.
Location of Branches
63
j) The Branch Inauguration
So far, you have prepared your business plan; you did
branding and brand registration, and presented the training issues. Now you are ready to launch one or more initial
branches.
¾ In a franchise startup, one or more initial branches are basically set up on a trial basis to test the
market and study if all the programs are going
well.
If you can sell several branches to different
people before starting a business, you are very
skilled.
¾ After testing and eliminating possible problems,
hold a great inauguration ceremony. Hold a real
noisy inauguration and invite everyone to attend.
Note
Make a series of special offers at the inauguration to help your branding. By this, you
actually help to set up your business.
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Smart Franchise
k) Applying Professional Forces
Employ professionals who can deliver your product efficiently and professionally.
¾ First of all, hire an attorney. It is better if the attorney is specifically a franchise attorney or has experience in franchise.
¾ Make a short-term or long-term contract with a pro-
fessional franchise consultant and have a consultant
beside you during your working time.
¾ Ask for help from branding consultants. The busi-
ness franchise has the potential to become a brand
quickly. It is better to use this potential more by having consultants with expertise in branding. Having a
branding consultant with the experience of activity
in similar fields to franchise businesses is financially
beneficial to you, and the profits cover the cost of
this consultant in practice.
¾ You also need a professional accountant or accounting
firm, preferably with the experience in franchise or a
company with dominance over franchise accounting,
because accounting is an essential part of any firm.
Various businesses fall under franchise businesses, both service providers and sellers and business branches; therefore, control and order come
first here. The smallest disorder in accounting can
cause parlous losses.
Applying Professional Forces
65
l) Preparing Training Packages
Ask an expert to set up training packages. You need two
training packages:
ƒ
ƒ
A training package for all managers and employees and individuals who are supposed to work in
the branches, but are behind the scenes.
A training package for the team of branch sales
that is in direct contact with customers. This package includes tutorials on how to present and introduce the advantages of your business model that
you can use in your sales in branches.
¾
Be aware that you have two groups in front; one is
the branch managers and the other is the branch
employees who are at different levels of knowledge, skill, and competence. All of these individuals should be able to use the training easily.
¾
Part of the training can be online. The other
part should be practical and direct so that individuals need to be present in the classroom.
¾
It is much better to use modern tools to make
training easier for individuals; that is, it should
not be complicated so that they do not have to
attend classes at a specific time by traveling a
distance. If the training can be online and teacher-centered and they come together in one
space in a shorter time, it will be more effective.
¾
66
Some businesses require people to attend mandatory training classes to ensure that they do it well.
Smart Franchise
All franchise businesses have a
specific training strategy. Those
who take training seriously will
gain the highest success.
¾
If you look at the successful franchise businesses, you can see that their focus is on
in-service training. Follow-up tutorials are the
result of the various feedbacks received from
customers; while working, customers have
complained to them and had demands that
caused them to change their training method
or made them change the tutorials according
to the market needs.
¾
Training should be objective, practical and
applicable; that is, it can be implemented in
practice. It should not be something that is
not in accordance with their literacy in the
practical world. For that reason, leave training
issues to companies that specialize in training.
¾
Prepare a handbook to introduce your collection and submit it to everyone, whether head
office staff or branch staff, to get to know you
through it and obtain the information they
need about you. It is better to provide the employees with the work history of the collection
and its key issues.
Preparing Training Packages
67
m) Marketing for Branch Sales
A franchise company first works on selling the number
of branches and secondly designs a strategy on how to increase sales of the services and products of the branch. As
a result, the business franchise marketing has two aspects:
ƒ
ƒ
Marketing for selling the branch;
Marketing for selling the products and services of
the branch.
In this part of the book, only case 1 is dealt with.
You can read my other books on marketing to learn
about marketing to sell products and services.
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
First, determine how you want to market your business and who you will sell it to.
Develop a branch marketing and sales plan.
Think where vendees can be found1.
Specify what specifications vendees should have.
Determine the sales periods of the branch.
Specify how many branches and in what geographical areas are to be sold.
Make a good map of the parts of the city where you
want to have a branch. Give this list to the marketing sector to adjust the marketing plan accordingly.
1. I speak about the marketing plan for end vendees in another book.
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Smart Franchise
1.
Methods of Marketing and Sales of the Branch
¾ Participate in events where potential vendees of the
branch may attend, as visitors or exhibitors. Participate in events with a strategy different from the typical one because you want sell a branch, not a product.
¾ At events, provide a brief overview of how your
business franchise is run and prove that it is easily
manageable.
¾ Introducing your business emphasize the ease of
operation and management of the business and il-
lustrate it using slides and videos. What matters to
the vendees is how easily they can run the business.
Numerous food outlets at franchise fairs turn the
entire kitchen into a booth to illustrate the ease of
doing business there, and the vendees can witness
this in front of their eyes.
¾ Attend online business events. A large number of
people attend these events behaving businesses to
sell. and/or aiming to introduce their businesses to
others or seeking to identify and buy businesses.
¾ Use the proprietary media to franchises. There are many
media in the world whose subject matters and headlines
are particularly related to franchise discussions.
¾ Ask for help from professional sellers of franchise
such as real estate agents.
Marketing for Branch Sales
69
¾ Use the websites available in this field to find and
inform people interested in buying or selling a franchise about franchise businesses available.
¾ Social media: one of many topics that are largely
followed on social networks is business. You can take
advantage of this subject and introduce your business franchise capabilities for selling a branch.
¾ News packages: you can use it professionally to introduce your brand and in a corner of it mention
that you have a few branches to offer.
¾ Your website: put introductory information on the
website and design it according to the search engine
optimization methods and explain all the possibilities
with the professional design for the branch vendees.
¾ Internet advertising: by inserting advertisements in
appropriate and popular places, you can start marketing and selling your branches.
¾ Appropriate presentation of your business: some
people specialize in marketing for branch sales. You
can ask these people to help you make a professional presentation of your business franchise. This presentation should:
ƒ Be consistent with your brand and franchise.
ƒ Harmonize with other advertising and marketing
methods of you.
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Smart Franchise
ƒ Be understandable and easily state the clear and
basic information that customers need.
ƒ Explain the primary conditions, in addition to
the price and business idea, to make buying a
branch attractive and highlight the advantages of
the business.
ƒ Hold group presentation sessions;
ƒ Invite people to attend specialized branch sales
seminars that are part of the sales tools.
ƒ Talk about the advantages of establishing branches and how to administer them.
ƒ In your brand graphic design and content, use
bold letter to write the main advantages of your
business franchise.
ƒ Speak about the head office support and profitability methods at the top of your introduction.
The decision to use the above methods depends on
the head office structure. At the head office of a franchise
business, apart from all the usual sections for doing the
business, there is a specialized section for the branch sales.
Note
There is no single marketing method for the
branch sales and one method cannot necessarily be appropriate for all smart franchise
businesses.
Marketing for Branch Sales
71
2.
Branch Sales Strategies
¾
One of the important strategies of the smart
franchise startups is to increase the number
of branches. For instance, you can offer a
partnership to the shopping malls such that
they provide the business location and the
business itself is invested by you as the franchise owner and sell the branch to others in
the long term.
¾
Another way is to establish a series of
branches and sell ready-made branches to
vendees. With regard to your strategy and
the amount of capital you have, you can
take the spaces, arrange them, design the
decoration, and do what you expect the
branch vendee to do, but introduce them as
the ready-made branches in the list of sales
sector of the branch.
Notice
Identify multiple models to attract vendees,
provide them with primary information,
and hold a sales meeting as the next stage.
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Smart Franchise
3.
Vendees of a Franchise Branch
¾
When the geographical area is specified, the
marketing sector can act smartly to attract
vendees. For example, if you want to have a
branch in a shopping center, first target the
businesses inside the same shopping center. Your marketing sector will inform them
that you are interested in having a branch in
that shopping center. There might be several among them who are thinking of changing
their business or they may have a space. By
offering these centers, you can find a vendee
for your business branch.
¾
Some of the franchise's main vendees are people who have ready and empty spaces; therefore, the marketing sector can inform the
owners of the vacant shops in the area where
you seek a place through real estate agencies
and/or direct notification and provide a basis
of negotiations.
One of the most popular choices for locating
a franchise business is the owners of properties
that may have properties with the same specifications as you consider for your purpose.
¾
Real estate agents, mall owners, and large
malls with abundant dead space can be among
your branch vendees.
Marketing for Branch Sales
73
¾
Gas stations and large chain stores are other
appropriate places for smart franchise startups.
¾
There are always many bars and food shops in
the market, but new and successful franchises
will also come to the market. In recent years,
the growth of these new brands is related to
the focus on their end-users and the program
it has had for them. This brand could sell a
large number of branches by targeting vendees who went there and eat sandwiches and
drinks and watched matches.
¾
On the corner of the space you supply the
products, point out that the individuals who
intend to launch a branch in that section can
contact you; this way, you remind customers
that they can also start a similar branch.
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Smart Franchise
n) The Business Development
The business development means that your brand has
a maximum presence in a certain geographical area and
finds its place in the market across the whole region.
¾
One way to develop a business is to sell
branches in areas where you are not present
and to advertise and inform about your activities where you attend. This information can
prepare the situation for presence in other areas.
¾
To enter the franchise business marketing procedure, you need to provide a basic grounding
with local tools; that is, you can speak about
yourself as much as possible in that neighborhood and popularize your business so that
people in that area can hear your name, see
your logo, and get to know the service models
you provide.
¾
If you are a supplier of specific services or
products, focus on it and advertise it. Sometimes companies display their services by
placing a container in the area. This way,
they display their capabilities and work records. This is a kind of introduction to develop the business and give it a head start
in an area hoping it becomes a branch over
time.
The Business Development
75
¾
The next policy in business development is to
strengthen the supplier sector. At the beginning of your career, because you are an amateur, while suppliers attempt to make you
their customers, they insist on appearing so
high hat, too; therefore, your business development sector will need to find new suppliers
over time and negotiate with current suppliers to continue working with.
¾
The business development team must analyze the business. It must compare the status of the business with the goals defined
in the program and determine your situation and clarify the changes required to be
made to the work or the parts that need to
be removed. Sometimes the analysis reveals
which service or product with what specifications is not attractive enough and wastes a
large amount of the branch time and money. You can omit those services or products
or set an additional fee for them so that if
some people want to use them, they have to
pay more.
¾
Another aspect of business development is
to constantly study the prevalent issues and
rules of operation in the geographical areas
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Smart Franchise
where your business is situated. For example,
if the municipality decides to start a business
in an area, identify it and attend. Suppose a
part is added to an urban area that did not
exist before, or it is decided to make a major cultural move in an area of the city, then
your business development team should participate in it and take full advantage of this
situation.
Notice
Therefore, identify the events in the geographic area considered and decide what
events to attend, where to sponsor, where to
advertise, and where to get a booth.
¾
Another strategy for business development
that the marketing team needs to work on
is a special offers system, coupons, and promotional items. These issues are addressed
in both the business plan and the marketing plan. In the primary investigations, attempt to find out what competitors are doing
in the market, what coupons are available in
the market, and how the methods are implemented.
The Business Development
77
o) A Few Tips on The Business Franchise
¾ In discussing the human resources of a franchise set,
there is a recruitment sector which you need to de-
fine the standards for. These standards include what
kind of people to hire, what you expect them to do
( job specification/description), and also determine
where you can easily hire the human resources.
¾ You must plan how the manpower supply will be
prepared to provide manpower to the branch-
es and use them in the internal system. You will
have two groups of employees; the first involves
those who work in the head office like a regular
business, and the second contains those who work
in branches and directly deal with customers. The
second category’s responsibility is different so you
must define the main strategy which they must use
to operate.
¾ Food courts are usually located in shopping malls,
but an interesting business that is currently set up
is the food court without a shopping center; that
is, when you enter the space, eight food brands are
working. This is one of the good business tricks;
that is, different models of food are gathered in one
place, and a food court is created that belongs to
them and does not depend on anywhere.
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Smart Franchise
¾ The business franchise has insurances, but each
branch has its own responsibility and it is expected
to buy its own insurance. Compensation for specific damages to the branch, such as fire, is in charge
of the branch owner and has nothing to do with the
franchise.
¾ The franchise can help the business prosper and
grow, because people have to observe certain rules.
Because of that, the franchise can gain the trust of
the market very well. Instead of building 200 different types of restaurant, people can do it under ten
different names with finer regularity, more money,
and easier management, and they do not need to be
in charge 24 hours a day.
A Few Tips on The Business Franchise
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