BY MRS. IDY. T. IMIYOHO DEPUTY DIRECTOR/LAGOS ZONAL OFFICER NATIONAL OFFICE FOR TECHNOLGY...

BY MRS. IDY. T. IMIYOHO DEPUTY DIRECTOR/LAGOS ZONAL OFFICER NATIONAL OFFICE FOR TECHNOLGY ACQUISITION AND PROMOTION (NOTAP)

Key Words Development Nigerian Delicacies Franchisor/ franchisee

Development Progress Growth

Nigerian Delicacies Delicious foods from the natural environnent included into the cultural use patterns of the Nigerian people

Franchise

Franchising is a contractual relationship between the franchisor and the franchisee It can be described as a business marriage between an existing business (the franchisor) and the new comer into the business ownership (the franchisee).

Who is a franchisor/ franchisee Franchisor the person or company that grants the franchisee the right to do business under their trademark or trade name Franchisee the person or company that gets the right from the franchisor to do business under the franchisors trademark or trade name

Types of franchising Two major types namely Product distribution franchises Franchisee simply sell the franchisors products. Supplier-Dealer relationships. Franchisor licenses its trademark and logo to the franchisees but typically Does not provide them with an entire system for running their business Some familiar product distribution franchises include: Soft drinks ( Pepsi /Coca cola) Oil and Gas ( Exxon Mobil) Automobile ( Ford Motor )

Production distribution

Business format franchise This is characterized by an ongoing relationship between the franchisor and the franchisee. The relationship includes not only the product but also enables the franchisee to acquire the right to use the franchisors entire business system ( business name, goodwill, product and services, operating manuals, standard marketing procedures, system and support facilities)

Business franchise

Before a franchisee can exist, a franchisor must be born. A franchisor is an entrepreneur and someone whose role of entrepreneurship is economic development. His role includes initiating change in the structure of business and society. This change is accompanied by growth and increased output which allows some wealth to be divided among various participants.

To be a franchisor is dependent on two things: To have a successful and proven business system and Secondly; To have the expertise, resources and commitment to make the business grow. To become a franchisor will therefore require from the entrepreneur to invest in time energy and financial reserves into learning and applying new business skills.

A franchisor must also be equipped and prepared to license knowledge to other business people. Seid et al (2006.261) believes that the real question to ask when considering franchising as a method to expand is whether the entrepreneur should franchise his business or not. According to them Not everything should be franchised. You have to have a concept that you can teach and thats very simple for the franchisees to execute.

There has to be an advantage to franchising for you (franchisor) and your future franchisees, and the concept has to be able to make money. To become a franchisor it is therefore important to determine whether or not the business concept is franchisable. Franchising is about relationship and the bottom line is that franchisability means that the franchisee is not the guinea pig in the relationship

Business system

FRANCHISABILITY OF A BUSINESS SYSTEM Often the decision to franchise can be taken too early for reasons unrelated to the desire to expand or to build a brand. For instance, the decision could be based on obtaining finance to cover operating costs or recoup losses of the existing business. The warning flags when deciding to franchise a business are:

- A concept/idea only cannot be franchised In todays fast-paced world, uniqueness is a fleeting thing. You might have a totally new and unique franchise concept. but before long.\, the copycat operators will be climbing on the bandwagon. - The business does not show a clear potential for growth. - The business currently does not achieve a reasonable return on investment. - The business has a limited operating history. The rule of thumb is that a prospective franchisor should ideally be able to prove that the business to be franchised has yielded at least three successive years of profitable trading.

Do you have a unique concept? . The general criteria to review when considering whether a business can successfully be franchised include

Tried and tested

A Tried and Tested Business Concept The business to be franchised must have been in operation for a reasonable period to make sure it works. It is advisable that a two to three year period is appropriate to give the potential franchisor a better indication of viability. It is also important for the potential franchisor to gain experience on the seasonality of the business, customers, suppliers, competition, positioning and branding. Knowledge on other aspects such as operating costs, pricing strategies and locations that work and those that dont work for the business concept will be extremely helpful when deciding to expand

Consumer demand

Consumer Demand A business must have a measurable set of results to determine whether sufficient consumer demand exists for the brands products or services in the targeted market. It is therefore that a well entrenched consumer demand or trend exist and that the product and/or service will be in demand for the foreseeable future. The business must ideally be able to distinguish itself from the competition and have a high loyalty customer base.

Operational system

The business needs to be based on a set of refined and unified operating processes that have been tested and proven in operation. These systems must be documented in a manner that communicates them effectively to franchisees through operations manuals and training programme.

The system must also enable standardization in the way the product and/or services are offered. It must be able to deliver the overall image and appearance to the franchisee namely, the design, dcor, signage, site criteria and layout. In franchising it is important to present the same look, feel and experience.

Can the knowledge to operate the system be transferred?

Franchisees and their staff need to be trained on how to run the business. A franchisee will not know much about managing a particular business. A business must be able to thoroughly educate a prospective franchisee in a relatively short period of time. Factors to consider are the:

Is there a specialized nature of the skills required which will make it difficult to find prospects and; Does the business have the expertise to train franchisees effective and efficiently in the skills needed by them to succeed

Economic requirements

A franchised business must be profitable. The franchisees will be expected to invest financially and personally to acquire a franchise and thereafter to pay continuing fees (royalties) and other fees, such as for marketing (advertising) and additional training to the franchisor.

The profit margins on the product or services must be sufficient to cover these various fees, the franchisees debt (loan to acquire franchise) payment, and still allow for an adequate profit and return on investment over the contract period. Other issues to consider are:

Does the type of business have any short term or seasonal cash flow problems exist it could affect a franchisees total investment depending on when a franchise is acquired. Will the franchisee be profitable. How many prospective franchisees can afford the franchise? Can the break-even point in a franchised outlet be reached over a relatively short period of maybe 12 to 18 months or shorter?

Differentiation

The business must be adequately different from its franchised competitors. The business should have some sort of unique selling point which will give it the competitive advantage required to pursue success in the market. This advantage could be in the form of a differentiated product or service, a different target market/s, a lower investment cost, a unique marketing strategy which can include the aura of experience in supporting the business or the acknowledged brand.

Suitability to Adapt The business concept must be easily adaptable to be reproduced in any location. Consumer tastes and preferences can vary depending on the market and/or geographic area.

Capital Needed to Franchise A prospective franchisor will need capital to develop the franchise system. The funds and resources required will be needed to build the infrastructure and to implement the franchise programme. (advertising, recruiting, training etc).

The capital required will also depend on the scope of the expansion plan. If an aggressive expansion is the target then the start-up costs can be quite high. It is therefore important that the prospective franchisor is financially stable and does not rely on the franchisees to provide him/her with the finances needed to grow

The necessary resources are available to meet the franchisors commitments to existing and new franchisees. The right people are in place to operate and grow the franchise business but more important, to support and assist franchisees when required

Commitment

To be successful as a franchisor a different approach to managing the business will be required. The prospective franchisor must also be emotionally and financially committed to build a long-term, mutually rewarding relationship with their franchisees.

It is also necessary when franchising to be aware of the continual need to ensure the system remains competitive through new products and/or services, innovation, marketing strategies and support to the franchisees.

Ensure that there is a direct link between the relationship with the franchisees and profit. A good relationship will make it easier for the franchisor to introduce changes to the system and to motivate franchisees to look after their customers/clients more efficient and effectively.

LEGAL CONSTRAINTS

A good franchisor must have a vision for the future of his business concept and the strategy and determination for continued growth and success. A good relationship between the franchisor and franchisee is critical for the success of both parties. Since franchising establishes a business relationship for years, the foundation must be carefully built by having a clear understanding of the franchise program

There are two main franchising legal documents: Disclosure Document and Franchise agreement The advice of an experienced franchise attorney should be sought to help a prospective franchisor understand the legal issues and to protect them from making costly mistakes.

STRONG MANAGEMENT

A strong management team will make a valuable contribution to the success of the franchise development programme. The prospective franchisor will not in all circumstances find it easy to take everything on his/her shoulders. Being in control of a franchise system requires a person to wear various hats for which he or she may not always have the time, experience and/or knowledge. This will include activities such as marketing, human resources (recruitment), finances, sales, training and operational management

Critical to the continued success of a franchise is support which franchisees required; Field officers need to be recruited and trained; management systems need to be created and implemented; accounting systems need to be on-line; procurement and logistics must be in place catering for the expected scale of the enterprise. The costs are all up-front and need to be funded by the franchisor

The cost of franchise recruitment is often under estimated first, you need advertising and promotional materials- brochures, videotapes, CDs, printing adverts, show stands, posters, website and e-mail. Others are sales staff, pay travel expenses, telephone, fax, media space, trade exhibition space and investment management time.

PLANNING

Many endeavors where a business expands through franchising stumble due to a lack of adequate advanced planning. Failure to plan appropriately can for instance, result in the initial under capitalization, cash-flow problems and panic management. An appropriate strategy to implement franchising as a mechanism to expand and/or grow an existing business therefore needs to be carefully planned and developed. This will ensure that franchising is pursued in a controlled manner and the steps required are:

Feasibility Study A feasibility analysis evaluates most, if not all, risk associated with an undertaking planning to grow a business through franchising. These studies are in fact a low cost risk management tool. It is also a controlled process for identifying problems and opportunities, analyzing the strengths and weaknesses of the business and identifying any modifications to the business concept necessary for the realities of the market.

A good feasibility study will not only help to reduce risk and uncertainties but will make it possible to determine objectives and define what is needed for a successful outcome when franchising. A feasibility study must also formally assess the viability of the business as a franchise.

Other factors that are also an integral part of a feasibility study when planning to franchise are: How much of the estimated market each franchisee can serve. This is usually in terms of the allocation of a marketing area. On this basis it can be determined how many franchisees the market can accommodate. A range of royalty (management service) fees can then be applied to determine the potential income per franchisee. To determine the basic maintenance cost needed for the franchise system. This can be established for instance, by dividing the average income expected to be generated from a franchisee into the estimated operating cost to determine how many franchisees are needed to meet basic maintenance costs.

A feasibility study also looks at the viability of an idea with the emphasis on identifying potential problems and attempts to answer the important questions such as: Will the business work as a franchise What is needed to ensure success How much investment is required Have alternatives been considered Is the design or location economically justified Can the operations be a financial success and managed.

The information gathered through a feasibility study must be incorporated in a business plan. The business plan is a more detailed and in depth document that sets out the vision and direction for a business to expand through franchising.

Pilot operation

A critical factor before embarking on setting up a franchise system is the pilot operation. Although one pilot operation of the business would seem to be the general norm of potential franchisors, it is advisable to have more than one pilot outlet in different areas. The pilot operation/s will assist the potential franchisor to:

Understand the operational dynamics of a franchise system. Provide valuable insights into the business operations, customer appeal etc. which will allow time to improve the business processes and evaluate supplier services before presenting the final franchise operation to potential franchisees and ; To assess the viability, profitability and consumer/client demand for the franchise product

Testing the business through the pilot operation approach is an invaluable tool for managing future risk and a possible breakdown in the relationship with franchisees. Admittedly such an approach can be costly and time consuming if done correctly. On the other hand it gives the potential franchisor more knowledge and experience but above all, peace of mind when developing the franchise system.

STRUCTURE FRANCHISE OPTIONS In the early planning stage to franchise a business it is advisable to consider various structural operational systems in order to: Manager the risk Provide the most effective and efficient means to penetrate the market and; Ensure that as franchisor the resources are available to service the franchisees needs

There are generally two basic methods used to structure a franchise system, namely Single unit (direct/Individual) Franchise A single franchisee acquires the right to operate ONE franchise unit and manage the franchisors business from a location within a defined marketing area.

Multi Unit Franchise Area Franchise: The franchise rights for a particular geographic area are granted to an area developer. The area franchisee may then either develop individual franchise units for its own account or find independent franchisees to develop franchise units. In the latter instance the area developer can have an equity interest in its area franchisees. The area developer usually commits to the franchisor to develop a certain number of units within a specified time period

Master (or Regional) Franchising: The franchisor grants the development rights in a particular market, usually a country or region, to a master franchisee who then takes on the responsibilities of the franchisor in the particular country or region. The master franchisee then develops the franchise system within the country or region. The development is in full accordance with the franchisors standards and quality control.

The individual franchise system normally generates the highest revenue for the franchisor. On the other hand however, this structure also requires a higher service level as a larger number of franchisees will need to be supported.

Conclusion Although any type of business can be franchised, not every franchise succeeds. There is no doubt that franchising offers an ideal blueprint for business success, but if the foundation of the franchise is not solid there is little chance of success. Being financially sound, having a strong management strategy, a strong brand and a family of motivated and profitable franchisees all go together to achieve long term success of the franchise.

Franchising . the wave of the moment

BY MRS. IDY. T. IMIYOHO DEPUTY DIRECTOR/LAGOS ZONAL OFFICER NATIONAL OFFICE FOR TECHNOLGY...

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