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Why Franchising Has To Be Complex

Why Franchising Has To Be Complex

Of course franchising should be complex. It is intended to be your future; it’s not the start of a new hobby or retirement filler – it’s where you plan to be for a good number of years. Certainly the motivation for seeking a franchise will differ from individual to individual but the underlying situation doesn’t change – you need to get it right. We are not seeking to be off-putting by highlighting the complexities and, in fact, it probably is more straightforward than it may first seem. However, your to-do list will depend on the specific opportunity you are pursuing. If we take a look at some items you should consider, we can quickly see that some may not even need to be on the list at all.

Choosing your premises

Does your chosen franchise have opportunities in the area of your choice? If not, are you prepared to relocate? This is naturally an early discussion item as it sets the scene for many of the decisions that follow. It may be that the franchise in question is non-territorial and if that’s the case, then the problem evaporates. Having resolved any territory issues, that naturally leads us to talk about premises – this being the specific location and address from where your franchise will operate. If it is home-based, the need for an extensive location search just disappeared. One less item!

On the other hand, if your business will need office, store front or even warehouse facilities, the review process takes on a different perspective. The search for suitable premises – remember the old adage that it’s location, location, location that drives success – might even come into play. If you have to conduct a search for the elusive perfect location, then the aspect of licences and permits may come into the picture. It is always important to build in a suitable time frame for the premises search and any permit requirements that may be needed. It is best to work on the principal that it will definitely take longer than you think.

While we are discussing the premises aspect, make sure that your plan takes into account potential expansion. If your franchise grows, as we all expect, can the present premises cope with the expanded volume? On the one hand, an early relocation due to growth would be a great situation, but on the other hand, potentially a costly and time-consuming situation.

If premises are involved, then almost certainly there will be a need for signage in one form or another. Quite often this in itself can be an item that is subject to regulation and more permits may be required.

Do you need staff?

Other items on the list that might disappear depending on the franchise model are staff and management. The type of franchise will determine how you handle this category. Some franchises are literally a one-person operation – if so, it’s one less item to concern yourself with. On the other hand, if you are looking at retail or manufacturing, certainly there will be a need for some members of staff. You need to be aware of what people and talents might be available in your immediate area. As with the search for the right location, the search for the right people may also take longer than expected, so allow sufficient time to complete the hiring process.

We can start to see that a homebased franchise has vastly different characteristics and needs to be one that has a distinct location, premises and staff. These distinctions may even be a determining factor as to which direction your opportunity search takes you.

In the money

Home-based or otherwise, there are some startup matters that will be common to all opportunities. Financing is not only a common element, but a basic one that needs to be addressed early in the search process. The type of franchise being reviewed will determine the capital required, and the franchisor will be able to advise on the specifics. It may be that the franchisor is also in a position to finance a portion of the fee and startup expenses, therefore always make it a point to ascertain what financing is available either from the franchisor or a third party that specialises in franchise financing. When we talked about allowing adequate time to get started and assuming it takes longer than planned, it is prudent to take the same approach with financing – that is, it will take more funds than you initially expect.

There is much work and due diligence to be undertaken when you set out to acquire a franchise. It is certainly crucial but not necessarily a daunting issue. Where franchising is regulated, then the franchisor will have done much of the ‘homework’ for the potential franchisee in preparing a suitable disclosure document. This will contain information and guidelines as to how to approach many of these research areas. It must also be remembered that the franchisor is a valuable information source as you are most likely not the first new franchisee that they have acquired – they have been there and done this many times. Therefore, draw on their resources to make acquiring a franchise a straightforward and timely process.
The benefits of owning and operating your own business, especially a franchise, are manifold and always enhanced by solid due diligence at the outset.

About the author

David T. Banfield received his professional credentials in banking and credit management in the United Kingdom, where he held positions in both the banking and factoring industries. Since that time he has held various senior management positions in the international banking and finance area in many different countries.
In 1991 David joined The Interface Financial Group as President and has been responsible for global franchise development, taking the organization from a one-franchise operation to their present 9-country operation.

David T. Banfield, President, The Interface Financial Group,
Phone: +905-475-5701, Ext. 2

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