Setting up a franchise can be time-consuming and costly – but the benefits can make it worthwhile. Here is what it takes to set up a successful franchise.
Franchising is a way to expand your business into other markets, by granting someone else – your franchisees – the right to run a copy of your original business in another location for an agreed amount of time.
As the franchisor, you manage the overarching business, and define how all franchises should be set up and run. You provide:
Your franchisees own and run their locations and are responsible for their day-to-day management. They provide the capital to set up their business, but need to set it up the way you prescribe. They usually pay you, as the franchisor, an initial fee to become a franchisee, and ongoing franchise fees.
What is franchising? (external link) – Franchise Association of New Zealand
Franchising your own business (external link) – Franchise New Zealand
Franchising your business is a complicated and time-consuming process, but when it’s done well and you have the right business model, it can turn your business into a national, or even international brand. Some of the other key benefits include:
Successful franchises have some common attributes. These include:
It doesn’t have to be the product or service you offer that’s unique, but could be the way you do things – the level of innovation or convenience you offer, your delivery system or your market positioning.
To be attractive to potential franchisees, it also helps if there’s a broader point of difference for them personally, eg.
For anyone to want to become a franchisee, they’ll need to see that they can earn a good return on their investment and a fair wage for the effort they put into setting up and running the franchise.
You’ll need to be able to show that you have a successful business with a proven track record, offering a product or service people want to buy.
You’ll also need to work out how long it will take for new franchisees to build their client base and turnover to a point where it’s self-supporting. Your franchise agreement needs to be long enough to let them make a fair return after they’ve reached that point.
You need to be able to teach someone else to operate successfully using your methods, and to develop a profitable market for the business in a different geographical area. Your systems and processes need to be simple and transferable.
Learn everything you can about setting up and running a franchise. Read books and industry magazines, attend information events, speak to people who have been involved in franchised businesses – both franchisees and franchisors.
Franchise specialists, including franchise consultants, franchise lawyers and franchise accountants, might seem expensive, but they can save you a lot of time and money in the long term.
Franchise consultants can help to guide you right through the process – but make sure you find someone reputable. Ask for references from well-established clients and speak to people who have used them before signing up.
Together with your team of experts, work out how much you can afford to spend on your franchising programme. Feedback from many franchisors is that it costs a lot more and takes a lot longer than you might expect. A good consultant will help realistically manage your expectations and determine how many hours you can afford to spend on it as well as the financials.
As part of setting up a franchise, you’ll need documents and systems to ensure everything about your business is transparent and transferable. Your team of experts will be able to help you with this.
Some of the core documents you’ll need to develop include:
A pilot operation is a way to test all your systems and processes and make sure that your original business can be successfully replicated and run by someone else. It can later be used as a training ground for potential franchisees before they commit to buying a franchise.
How to approach franchising your business (external link) – Franchise New Zealand
Award-winning franchise Just Cabins has gone from strength to strength since being taken over by franchisor Fenton Peterken.
Just Cabins rents out self-contained units for individuals and companies to use as extra rooms, offices or accommodation. They need no planning permission, making the franchisees’ job simple – find the client, deliver and set up the cabin, then receive the weekly rent as long as the cabin is needed. Once the cabin is no longer required, it can be moved on to the next customer.
Originally a franchisee in the business, Fenton saw the potential of the franchise and bought the overall business from the original franchisor in 2010. He expanded the business throughout New Zealand, gaining 14th place in the Deloitte Fast 50 in 2014 in the process. The business has won multiple franchise awards, including Westpac Supreme Franchise System of the Year in 2017.