How to become a franchisor

Franchising is a great way to grow a business as it employs third-party capital to replicate the business in more locations, thereby increasing its footprint and brand presence. If you have a successful business, you may have enquiries from people wanting to buy a business franchise. In such a situation, you may wonder how to become a franchisor. Developing a franchise needs some serious evaluation and planning. Here are six steps to follow when becoming a franchisor.

  1. Test your business model rigorously 

Many entrepreneurs get excited about franchising their business idea without the proof of concept or with their first store operational for a short period. If the business model is not proven in the South African market, it’s wise to test it for at least a year before franchising. Rigorous testing over a year will show whether the business model is sustainable and whether any seasonality applies. The financial results of the first outlet can then be used as a basis for financial projections provided to potential franchisees as an indication of the possible financial performance. Financial projections based on the actual performance of an outlet are more credible and reliable than pure estimates.

  1. Make sure that your intellectual property is protected

Protecting intellectual property is critical in franchising since franchisees are licensed to use the franchisor’s intellectual property. Before offering franchises, ensure that trademark applications are filed to protect the brand name and other brand collateral. It’s advisable to do this through an attorney specialising in intellectual property protection since the attorney can advise on the aspects of the brand collateral to protect and the classes in which to file these applications.

  1. Develop the franchise model and value proposition

Developing the franchise model and value proposition is critical as these form the foundation of the franchise relationship. An entrepreneur should scrutinise the existing business and determine the impact on operational and financial management if the business is owned and operated by a franchisee. There are many aspects to consider and pitfalls to avoid, so it makes sense to contract with a Franchise Development Consultant such as Franchise Fundi to get expert advice on developing and structuring the franchise model.

  1. Pilot an additional outlet as a franchise

In some instances, it could be that the business’s success can be attributed to aspects such as an excellent location or existing clientele. Therefore, it makes sense to pilot an additional outlet as a franchise in a different area, testing the model’s replication and the business model’s success in another market. Whether the pilot is franchised or company-owned, it’s essential to run it separately from the existing business to test the ability of the business model to work in another location.

  1. Develop your franchise documentation

In becoming a franchisor, the business must develop the required franchise documentation. This includes a Franchise Agreement and Disclosure Document that complies with the regulations in the Consumer Protection Act (see Legal Aspects of Franchising). In addition to the legal documentation, it’s crucial to provide franchisees with an operations manual which functions as the blueprint for running the franchise business. The franchise agreement should describe the operations manual and contain all operational standards and regulatory requirements for running the business. Online franchise management systems are available to provide the operations manual to franchisees in a format that is user-friendly and easy to navigate. 

  1. Market the franchise opportunity

Once all the preliminary work on the design, proof and documentation of the franchise is complete, the franchise is ready to be marketed to potential franchisees. Online portals such as Franchiseek South Africa provide a cost-effective and efficient way of advertising the franchise opportunity.

Do you want to learn more about franchising your business?

If you would like to learn more about how to franchise your business and the benefits of franchising your business, we recommend you read our resource of the latest franchising news & advice. You can also check out our previous articles, such as how to franchise your own business. This can provide a useful starting point for your journey in franchising.

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