Thursday, February 16, 2017

Young Franchisors Can Save Themselves a Lot of Trouble

You have the right idea, you even got the money — now make sure you do it right.

A recent announced by the International Franchise Association (IFA) and performed by LeOS’ partner FRANdata uncovered some of the biggest challenges for emerging franchisors.  One conclusion I draw from the results is that many young and bright businesses can avoid the biggest pitfalls by one simple trick: get the facts!
This is crucial since over 90% of emerging franchisors dig into their personal savings and/or ask friends and family to chip in. In the United States, emerging franchisors spend almost $580,000 to launch the original business. Of that, an average of almost $560,000 comes from personal finances or out of mom’s savings account.
In addition to the initial investment, the budding franchisor needs to spend money on the future franchise infrastructure and meeting regularity requirements. You’d think that cash flow will soon become a huge issue for such a young franchisor. And while it is a concern stated by over 40% of emerging franchisors, the real challenge they face is executing the franchise business model.
According to the survey, all but one of the top six challenges for new franchisors relate to franchise related issues. They include finding qualified franchisees, how to market the franchise, handling growth and increasing support needs or finding qualified employees with franchise experience. Many feel the acute lack of franchise experience. No wonder, since only 25% of new franchisors have any form of prior knowledge about the franchise business model.
So what do you do when you have the right idea and managed to get your original business to a stage where you consider franchising as a growth model? Get the expertise you need to avoid expensive mistakes. Here are just a couple of things emerging franchisors need to consider:
  • Does my initial franchisee fee reflect the expenses required to find, guide and train qualified franchisees?
  • Where do I find them?
  • What kind of initial training will set new franchisees on the right track?
  • Does my royalty reflect the brand’s value but also the ongoing services provide to franchisees?
  • What ongoing services help franchisees to succeed?
  • What is a good ratio of field staff to franchisees/businesses?
  • Can the franchisor run its operations without having to sell more franchises?

These are important questions and the best thing is that answers to all of them are available. Even better, they are not based on gut feeling but analysis of actual performance data of franchise systems. So, congratulations on your great idea. Excellent you got the money. Now, to make sure you apply the franchise business model successfully, find support from franchise experts like FRANdata or LeOS. Also, your mom will be grateful, too.


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