How Do I Unlock the Potential of My Franchise System?

How Do I Unlock the Potential of My Franchise System?

Franchising is currently in a state of flux. In particular, the recent recession has meant that a number of once successful franchise systems have encountered financial difficulties (at both a franchisor and franchisee level). The difference between the systems that have failed (or are struggling) and those which continue to succeed (even in times of recession) are those which have been structured properly.

The key to structuring a successful franchise system is to get the right advice from the very start. This means creating and using a “team” of expert advisers and others experienced in successfully franchising businesses to assist in creating a structure and model for success. By getting the right commercial advice, businesses are able to create a sound and viable foundation and platform to allow for substantial growth.

Lawyers (both those experienced in franchising and those who are not) have a tendency to create documents and strategies which might technically be very sound (which is important) but, which in terms of being “commercially” sound, are deficient and therefore “un-bankable”.

The ability to grow a system in franchising is very dependent on the ability to fund expansion. Funding expansion is likewise dependent on sound commercial documentation being prepared in a manner which treats all of the parties fairly and which does not unnecessarily expose the funder.

The goal is to create a fair commercial arrangement which a funder can “bank” comfortably and with confidence.

There are a number of key elements required to create a model for success, all of which focus on providing commercially sound advice to franchisors (existing and potential). In terms of key elements to successful franchising, we consider that the advice given must:

• Be solution orientated and practical;
• Create a “Win-Win” situation for the parties;
• Take into account the particular exposures of any funder and/or supplier;
• Balance the interests of the franchisor and the franchisee;
• Promote the ability for there to be disclosure between the franchisor and the funder regarding any default by the franchisee or problems in the system;
• Provide fair mechanisms for dealing with breaches of the franchise agreement;
• Provide the franchisee with an opportunity to build a business which they can ultimately sell for a profit; and
• Provide solutions which assist with the disconnection most franchisors have with their franchisees.