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Funding the franchise business - franchisor

Written by: Diarmuid Kieran

Article Overview: Additional costs for the franchisor when funding his franchise business expansion.

Funding the franchise business - franchisor

For those who decide to build their business through franchising, one of the biggest obstacles is the added cost and the level of funding therefore required at the initial stage. Anyone who is considering growing their business through franchising should give full consideration to the following cost items:

a) The pilot operation
The franchisor must have operated a successful test operation before franchising the business. Funds will be required to do this.

b) The operating manual
A thoroughly prepared operating manual must be written before franchising commences. This will certainly involve a considerable period of time and may also require an input from a consultant and/or other/s with appropriate expertise.

c) The franchise agreement
Whilst the franchisor will set out the terms of the franchise agreement, a lawyer must be retained to fine tune it and constitute it as a proper legal contract.

d) Promotional material
The writing, design and printing of a range of good quality promotional material for the franchise pack for prospective franchisees must be funded.

More than all the above, perhaps, is the quantity of management time that must be dedicated to the development of the franchise concept. Apart from the franchisor's own time, additional management resources and a strong team will be required to provide back-up and support for the franchisee network.

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Related Forum Posts
Re: 50 States - All Franchisees of the U.S. Government - [quote="RussellWebb":1twrc65u]Is this common knowledge in the franchise arena?[/quote:1twrc65u] This is not common knowledge in the franchise industry. I don't even see it this way. I don't think it's a franchisee/franchisor relationship at all. By definition, a franchise is the agreement between 2 legally independent parties which gives: - a person the right to market a product/service using the trademark or tradename of another business (franchisor) - the franchisee the right to market a product/servuce using the operating methids of the franchisor - the franchisee the obligation to pay the franchisor fees for these rights - the franchisor the obligation to provide rights and support to franchisees. The first 2 points don't apply to the federal/state relationship. The last 2 do.
Franchise Support. What is it to you? - I do a lot of due diligence on franchises that we work with. Most of the time I call up existing franchisees and act like I am interested in buying a franchise in their system. I ask a ton of questions just like any normal buyer, they do not know that I am an experienced franchise consultant. My question for this forum is: What do you consider support from the franchisor? Is it: - Communication? - Brand growth? - Advertising? - Assistance? - Or something else? The reason I ask this is that some franchisees tell me that they don't get enough support from the franchisor and when I ask them what support they would want, they don't have an answer outside of "helping me get more business". So I thought I would throw this out to the group and ask you what you consider would be support to a franchisee. .
Re: Introducing a US franshise to a Canadian market - When franchisors begin to expand outside of the United States, Canada is one of the first areas they consider because: 1. Similar culture 2. Same language in most of country 3. Some provinces require registration, but it is not considered too difficult. 4. An economy that generally mirrors that of the United States (may be different currently) The main cost for a franchisor would be contracting a Canadian franchise attorney to convert their legal documents to meet Canadian law, then reprinting their marketing material. If a person sees a franchise they like, that is not currently in Canada, they might approach the franchisor and ask about becoming an area developer for the franchisor. I don't think that most franchisors would not sell a master franchise in Canada, in which the franchisee takes over the entire country, because Canada is such an opportune areaa, but by becoming an area developer the new franchisee could have the right to develop/sell several franchises in a given area.
Re: What Franchisors Want From Franchisees - In my experience one of the things franchisors look for is the professionalism of a candidate. I have run across quite a few times where I had a candidate looking a certain franchise and the other person that was looking at the same territory made their decision first and my client was left without a territory. That being said, my client did make their decision, it was just a day too late, but we didn't know that at the time, so the franchisor went to the drawing board and without overloading the market figured out a way to create 2 territories by moving the 1 territory over and establishing another one. Both franchisees were happy and the franchisor got a 2fer. Talking with the franchisor afterward they told me one of the main reasons they did that was because of the responsiveness of my candidate. They say this was very professional and it wasn't just the $$ that made them create the additional territory, although I am sure that played a part, but they really worked with all of the existing franchise owners and the new one and my candidate to get this done.
The List Could Go On - Great List. There could be so many more!! There are a lot of highly profitable and succesful franchises out on the market but sadly there are also many dishonest franchises out there. What people often overlook, however, is the category that is wore than the dishonest franchisor and that is the honest franchisor who has a belief in their business but the market place doesn't. In the UK there is a programme called dragons den where people pitch business ideas to a panel of investors hoping for a cash injection. It's getting to the stage where every week some one wants to franchise their idea. Do thet get any money. Of course not! The investors often slate their idea. Many of them are adamant theirs will be a world beating organisation. The worst part is there is nothing really stopping them selling their business idea on the franchise open market. They are the kind you need to look out for.


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