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First-time franchisors can often make mistakes. If you are new to franchising, it is vital to be aware of common franchisor mistakes in order to avoid them. In the business world, mistakes can be costly and cause reputational damage. This article will explain seven common mistakes new franchisors make when franchising a business and how you can avoid them.
1. Understanding Franchise Costs
Franchising is not without its costs. Franchisors often pay multiple costs before they can set up a single unit. Some franchisors do not adequately factor these costs into their decision to franchise.
To avoid unexpected costs, you should create a budget for each potential cost and factor it into your business development plan. Aspects contributing to franchising costs can include the following:
- legal fees;
- creating a comprehensive package of information and training; and
- recruiting franchisees.
2. Creating a Comprehensive Franchise Operations Manual
The early stages of franchising a business can involve much administrative work. One of the documents you should create is a franchise operations manual. This is a manual franchisors provide to franchisees. It outlines all aspects a franchisee must know to operate their unit.
Within the document, you should include detailed information such as:
- the business model;
- how the franchisee should set up their unit;
- how the franchise relationship works;
- the knowledge you have about your business and its operations; and
- recruitment and employment procedures.
It is critical to share the essential information you have about your business and clearly outline how franchisees should run their units. With this manual, franchisees will be better prepared for their roles. A well-written, comprehensive operations manual can protect your brand’s reputation as you will clearly state their responsibilities within the manual.
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3. Seeking Legal Advice Early
Seeking legal advice can be essential to your franchising journey. An experienced franchise lawyer can ensure you use legally sound contracts that protect your business and franchised brand. Legal disputes can be expensive, but you can mitigate the risk of issues cropping up further down the line by investing in legal advice from the start.
4. Due Diligence When Recruiting Franchisees
As the franchisor, you are responsible for recruiting new franchisees. A person becomes a franchisee once they sign the franchise agreement. From this point, you or your franchisee may only terminate your business relationship under the specific conditions within the agreement. Franchise agreements span several years, so a franchisee must be suitable for the role.
Poor franchisee performance can affect your overall franchise and brand reputation. Therefore, it is vital that you only onboard franchisees who you confidently believe are suitable for their roles. You should:
- ensure that you enter the recruitment process with a person’s specifications in mind; and
- conduct your due diligence when you find a prospective franchisee that meets your considered criteria, including conducting research, such as contacting their referees and checking online sites such as Companies House.
5. Rapid Expansion
Expanding a franchise too rapidly by adding new units in quick succession can cause significant difficulties for franchisors. If franchisors do not take enough time to consider the market demand in new areas, they can increase the risk of newly established units failing. Therefore, you should carefully consider and plan your brand’s expansion.
You should note that a once-tested and proven business model is not guaranteed to provide ongoing profits. That is to say, what once worked may no longer be as successful. Therefore, you should avoid neglecting business development as your franchise expands and develops by:
- adapting your products;
- updating your business model; and
- providing continuing support to franchisees.
6. Responding to Franchisee Feedback
Franchisees can be valuable sources of feedback. They may have great ideas about the wider brand once they have settled into their roles. If you pay attention to your franchisees and give them opportunities to give feedback, you may come away with many exciting new ideas for business development.
Franchise agreements span several years, so you should create good relationships with your franchisees. You may also create a franchisee community by providing networking opportunities and delivering additional value within the relationship. If franchisees can meet, they can collaborate, share their successes, and warn each other of earlier mistakes.
This handbook covers all the essential topics you need to know about franchising your business.
Key Takeaways
New franchisors make several common mistakes. These include:
- failing to consider costs before franchising thoroughly;
- not creating a franchise operations manual;
- not seeking legal advice;
- not completing due diligence when recruiting franchisees;
- expanding too rapidly;
- failing to adapt and develop their business model; and
- not tapping into franchisee feedback.
You can avoid many of these mistakes through careful planning, consideration, and investment in legal advice. Take a long-term view and a considered approach to franchise expansion.
If you require legal assistance franchising a business, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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