How To Franchise Your Business?
(For Potential Franchisor)

1) What are the advantages of franchising?

• Higher Productivity
• Faster Expansion
• Lower Capital Outlay
• Minimal Increase Employment Size
• Access to Good Locations
• Enhanced Business Image
• Better Motivated Personnel
• Economies of Scale

2) What is involved in franchising?

• Tenure or Period of Contract
  • Period of validity of the legal contract between the franchisor and franchisee, usually set by the franchisor. Legal contract can be as short as 3 years or as long as 10 years.
• Initial Fee
  • The upfront payment that the franchisee must make to the franchisor to obtain the rights to the business format and trade or service mark or trade name for a specified period.
• Royalty/Management Fee
  • An on-going payment, usually made monthly, by the franchisee to the franchisor. The fee is usually based on a percentage of gross sales. However, it could also be a fixed fee or a variation or both. In return, the franchisor usually provided management services such as joint advertising & promotions, updating of procedures, continuous product development etc.
• Renovation Cost
  • Cost incurred by franchisee to convert premises to the image and layout as specified by franchisor. Some franchisors help subsidise the renovation cost through canvassing for supplier' support/sponsorship.
• Franchise Agreement
  • The legal contract between the franchisor and franchisee spelling out the rights and obligations of both parties, terms and conditions including that for termination, and the validity period. Agreement is usually drawn up by the franchisor's lawyer.
• Territory
  • The size of territory varies depending upon nature of business and the contract.
• Supply of Goods and Services
  • Franchisors usually specify a certain minimum percentage of goods and services needed by the franchisee be obtained from them to ensure the quality of goods and services provided.
• Compliance with Contract
  • Franchisees are required to comply with the terms and conditions of the franchise agreement to ensure they do not conduct themselves in a manner that affects the image and business. Possible termination of agreement if either parties fail to abide by the terms and conditions spelt out in the franchise contract.
• Terms for Termination
  • Franchise agreements can be terminated in three ways:
    • when the contract expires
    • termination by the franchisor under a breach of term(s) in the franchise agreement
    • mutual agreement by franchisor and franchisee to terminate the legal agreement prior to its expiry.

3) What are the steps involved in franchising?

4) What should a company do if it has the potential to go into franchising?

• Finalise the Concept
• Conduct Franchise Feasibility Study
  • A franchise feasibility study differs from a business feasibility study as it gives the company an insight to business expansion with new outlets operated by franchisees instead of its own employees. Franchise feasibility

5) What should a company prepare to get ready to franchise?

• Use Own Staff or Consultants
  • Franchise development work is a massive task requiring time, knowledge and resources. Companies with limited manpower resources usually engage consultancy firms to develop and complete the franchise package.
• Set up Systems/Procedures and Support Functions
  • Systems and procedures set up to incorporate management and operation of franchisees in addition to their corporate operation. The system in place should give franchisees sufficient autonomy and yet enable the franchisor to control and ensure a minimum consistent mode of operation. Adequate support to franchisees is very important and may include site selection, store renovation, opening, training, research and development etc.
• Operations Manual
  • A set of written procedures and rules by which franchisees have to comply with. It must be comprehensive, readable and user friendly. The operations manual clearly spells out how the franchisee and the staff can follow the successful way of running the business.
• Registration of Trademark or Servicemark
• Regarded as intellectual properties of the franchisor, it is important companies register the trademark or servicemark before launching the franchise. Consult a lawyer to assist in the registration.
• Legal Agreement
  • The agreement which bind the franchisee and franchisor, clearly stating the rights and obligations of both parties. It should offer adequate protection to the franchisor and at the same time be fair to the franchisee.
• Model Franchise Outlet
• Franchise Marketing Kit
  • Brochures with exciting franchise package information for the prospective franchisee.
• Franchise Selection Criteria
  • A set of guideline and criteria for franchisee selection to avoid problems that may arise from making a bad decision.