Franchising is an exciting marketing method. When it is properly structured and well run it provides benefits and satisfaction for both parties. It is not an easy route to riches for franchisor or franchisee, nor is it a panacea for the ills of a 'sick' business.

The establishment of a franchise has to be undertaken with skill, patience and capital. The time scale for establishing a franchise system and preparing it for marketing can be as long as three years, and it can take another three to five years before the franchisor begins to see net profits and cash flow.

The capital requirements of the franchisor have to reflect these time spans. However, once the network moves into net profit and achieves relative maturity, the return should make the effort and investment worthwhile.

Why consider Franchising your business?

The advantages of franchising for a franchisor may be summarised as:

• The growth of the network is achieved using the financial and manpower resources of the franchisee.
• The franchisor is not concerned with the day to day operation of each outlet.
• The franchisor's organisation is compact and can earn profits without involvement of high capital risk;
• The network has an ability to grow rapidly;
• The franchisor has fewer staff and fewer staff problems;
• The management of each outlet is the owner, who will tend to be well motivated to be successful.
• It provides wider and secured outlets for products and services. 
• It enables the franchisor to service national customers using their network of outlets.

Points to consider prior to Franchising

Franchising your business can be a very successful way of expanding. Some of today's largest businesses have used franchising to finance and accelerate their growth into world brands. However, franchising must be planned properly-

• It must be pilot tested with company-owned and operated outlets.
• Business must be successful, distinctive and replicable.
• Take proper professional advice - Solicitor, Banker, Accountant and possibly a Franchise Consultant.
• The Franchise Agreement must be written by an experienced Franchise Solicitor.
• Take time to write an operations manual.
• Choose franchisees very carefully and slowly.
• Avoid overselling and forecasts.
• Have first class training.
• Maintain good ongoing relationships.
• Focus on Franchisee satisfaction and profitability.
• Keep developing the Franchise and maintain standards.
• Ensure marketing, advertising and PR is first class.

As the most-franchised nation (per head of population) in the world, there is a very high level of awareness of franchising in Australia.  As a result, the Franchise Council of Australia receives many inquiries from individuals and organisations who have existing businesses or who are developing business concepts, and would like to establish these as franchise systems.

This high level of interest, however, is not followed-through by the number of new franchise systems which actually enter the market. The reason for this is simple:

Establishing and testing a business concept is not as easy as some would believe, and furthermore, Australia now has some of the world's most stringent franchising legislation which means there is little or no margin for error for "new" franchisors.

Proving the Business Concept

The average stand alone small business has an 80% chance of failure in its first five years of operation. Prior to franchising, a small business should operate for at least this time (and certainly no less then three years) to prove that it has a viable concept, ongoing market demand, replicable systems, and a management, logistic, marketing and training structure capable of supporting franchisees in a variety of locations. If not, the business may well become another statistic.

During this period, it is highly desirable for the intending franchisor to open several outlets using their own capital in which they can test the adequacy of their systems, procedures, training, etc. The lessons learned during this phase will reap dividends after the successful commencement of franchise operations.

Getting Proper Advice

Experts who are skilled and experienced in franchising can give you competent advice relevant to your franchising plans. Be sure to seek out these specialists. It is critical that intending franchisors get the right advice from the very start of their franchise journey, and in particular that they have ensured all aspects of their intellectual property rights are protected prior to embarking on Franchising. 

Article provided by Franchise Council of Australia.