What a Franchisor Needs to Know Before Launching Their Own Franchise
There are two main ways to start a new franchise system. The first, and most common in practice, is expanding or transforming an existing business through franchising. The second way is to create a new company from scratch, assuming it will operate based on a franchise model.
Sometimes, this idea comes to a franchisor when people, impressed by their company’s success, ask about buying a franchise license. Increasingly, owners of existing companies that could grow faster than their capital and human resources allow decide to create a franchise system to fully unlock its potential.
Key Things to Remember
A franchisor must understand that launching a new franchise isn’t a quick fix for a struggling business. If done ethically and wisely, it won’t bring immediate positive cash flow and profits.
Instead, developing a franchise system should be approached like any other business growth method. It requires investing capital and human resources. It might take several years before the first profits and positive cash flows appear.
Therefore, the core business must be financially stable with a solid foundation. The franchisor also needs enough capital resources to support franchise operations until they become profitable.
Keep It Simple
It’s crucial that a business developed through franchising is based on simple and clear principles. The franchisor will need to teach franchisees how their concept works so they can achieve similar success. The more complex the rules, the harder it will be to find, train, and work with franchisees.
It’s also important that high equipment costs or installation difficulties don’t hinder the business launch. It’s no coincidence that most franchise systems focus on perfecting a limited range of products or services to a high standard.
A good example is the fast-food restaurant industry. The simpler the kitchen layout and design, the more standard the decor and appearance of the dining area, the easier it will be to adapt a location to the required standards, and the faster franchisees can implement each operational step.
Developing a simple menu reduces inventory storage needs and ensures straightforward, quick, and efficient food preparation and service. A simple, limited menu also limits the amount of equipment needed, thus reducing space requirements, investment amounts, and facility maintenance costs.
