A lawyer might say that first you must comply with franchise laws. But that’s not really the first step. To start with, Francorp recommends the formation of a business plan. Francorp will help you decide, based upon your own presence in the marketplace and the strength of competition, where to sell franchises and who to sell them to. (What is the profile of your prospective franchisee?) Francorp will also assist, based upon similar criteria, what the franchise fee and royalties will be and what percent of sales franchisees must contribute to regional or national advertising. Once a plan is formulated, Francorp will develop professionally crafted programs and materials as outlined below.
Senior Consultant On-Site Analysis
A Senior Consultant will visit the business to be franchised to review its operational characteristics and recommend policies and procedures, aimed at enhancing the franchise program. The Senior Consultant will also identify operational elements of the business critical to the legal, operations, and marketing aspects of the franchise program, and relay this information to appropriate Francorp personnel.
Senior Consultant Analysis
At Francorp offices, a Senior Consultant will review and recommend policies and procedures aimed at enhancing the franchise program.
Francorp will make recommendations relating to the critical business decisions that become the foundation of the franchise program and that are incorporated into the legal, operations, and marketing documents and strategies. These issues include policy formulation, market potential, speed of expansion, the franchise structure best suited to the Client’s situation, and current company resources available to meet franchise goals.
- Franchise Owner Profile The ability to identify specific characteristics of the target franchisee is essential to structuring a franchise program. Qualifications, such as financial resources, previous experience, and business skills, will be addressed, based on the needs of the Client and Francorp’s knowledge of the franchise marketplace.
- Type of Franchise Offered A franchisor may offer individual franchises, multi-unit franchises, or sub-franchises – or all three – depending on such factors as unit investment, complexity of operation, cost and nature of support programs, and expansion goals. In addition, a franchisor may offer a start-up franchise or a conversion franchise (to a compatible existing business) or both. Francorp will recommend a franchise program designed to meet the Client’s needs.
- Determination of Territory Based on the nature of the Client’s business, competition and other factors, Francorp will suggest whether or not the franchisee needs an exclusive territory and the degree of exclusivity. If it does, Francorp will analyze available territorial and demographic data from the Client’s existing business and prioritize appropriate criteria, such as population, competition, income levels, size of the market needed to support a franchise, industrial base, or business base.
- Franchise Support Programs Francorp will identify the type and scope of services to be provided to franchisees, including initial training, supervisory visits, site selection, and advertising support. In this manner, a comprehensive support program can be planned and the cost of that program anticipated.
- Internal Staffing Francorp will assess human resource needs for implementing the franchise program and will determine how best to meet the needs, whether by expanding the roles of current staff members, or by creating new positions. Francorp will also review the Client’s organization structure, assess its adaptability to franchising, and recommend changes, if necessary.
Franchise Revenue Sources
Francorp will review the Client’s revenue options and recommend appropriate revenue sources that may contribute to the Client’s income and profits. Among the available revenue sources are the following:
- Initial Franchise Fees Franchise fees will be determined after weighing various factors, among them the marketability of the franchise at various price levels, competition from other business opportunities available to potential buyers, and the cash flow produced by the business. The recommended initial franchise fee will be structured in light of a number of factors, such as front-end selling expenses, advertising, commissions, training, site and start-up assistance costs, market needs, and other variables.
- Royalties Royalties will be recommended after a review of the Client’s business and in light of the needs of franchisees and current industry practices. They will be based on the need to maintain sufficient corporate cash flow, to support general and administrative costs and franchise services, and to provide ongoing income for the continuing operation of the franchise. They must also be affordable for franchisees.
- Advertising Fees Local, cooperative, and corporate advertising fees will be recommended after an evaluation of the amounts currently spent for advertising in operating units and the type of advertising needed at the unit level. Corporate advertising fees required of franchisees will be based on the need for finished advertisements in their various forms.
- Addition Income Sources Some franchisors derive income from other sources as well, including the sale of products and services, leasing of assets and real property, and financing. Francorp will assist the Client in determining which sources are appropriate and practical.
- Franchise Business Planning Following the Senior Consultant’s analysis, team members assigned to the Client’s project will review all critical decisions and weigh the impact of these decisions on key aspects of the franchise program. Francorp will complete detailed pro formas and financial projections which contain a five-year cash flow analysis of individual operating units and the franchisor organization. In addition, Francorp will make final recommendations relating to the business, legal, and marketing characteristics that impact on the success of the franchise program. Finally, Francorp will formalize its recommendations into a franchise business plan. This plan provides key franchise business decisions, assumptions, and financial projections needed to set short and long term goals. Clients can use this plan in presentations for financial institutions or for corporate planning.
- Francorp will develop a Franchise Structure Report. This report includes comparisons of similar franchise companies or business models. It also summarizes recommended structures, fees, royalties, financial projections and pro formas that define the concept as a franchise.
- Francorp will develop the Franchise Structure and Assumptions. Financial projections and pro formas are developed along the way with the information needed for the drafting of the franchise documents.