Franchising is a great way to expand your business quickly when you don’t have the cash flow to to drive growth efficiently on your own. It also distributes the risks and rewards of opening new locations, since franchise owners cover their own startup and operating costs. If the franchise were to fail, the financial loss to the franchisor is relatively low. Of course, that does not mean franchising can be approached lightly and without proper planning.
While a failed franchise might not be devastating, it can still have significant impacts on your finances and your brand’s reputation. When preparing to launch your own program, it’s important to do your research and work to ensure every franchisee’s success. Here are a few important ways to make sure that your franchises survive and thrive where others might fail.
1. Make financial preparations
Franchisees provide their own startup costs, but franchisors aren’t completely off the hook in terms of investment. You’ll need to design the program and spend time and resources marketing it to potential investors. Once you’ve found suitable franchisees, you’ll still need to provide training, coaching, monitoring, and management, which may require hiring additional dedicated staff members. In many industries, new locations won’t turn a profit for months or years after opening, and you’ll need to be prepared to cover your own associated costs until they do.
Even though you might budget carefully to accommodate this, it’ll tie up otherwise disposable funds and make your business more vulnerable to cash flow interruptions. Because of this, it’s a good idea to talk to your representative at your financial institution about additional financing options that you can make use of when the need arises. A few likely options might be…
Free standby finance facilities
Standby finance facilities, or standby loans, are a type of business loan that you can negotiate in advance. They work by allowing you to lock down an interest rate and get approved ahead of time, free of charge. By doing this, your financial institution can ensure that you’ll come to them for your financing needs when they arise, and you’ll be able to get access to funds at a moment’s notice. Most significantly, it means that you can work out the details while business is good, time is not an issue, and stress levels are low.
Invoice factoring
Invoice factoring is a fast and highly versatile financing tool for dealing with unexpected budget shortfalls. Instead of taking out a loan, you can exchange an outstanding invoice for most of its value. You’ll receive the funds almost immediately, and your financial institution collects the payment from the debtor on your behalf.
2. Enforce uniformity
One of the major benefits of being a franchisee is working under an established and trusted brand. Because of that, it’s critical to protect your brand’s reputation and image by ensuring that franchises provide consistent products and services across all locations. By doing this well, you can build customer confidence in your brand, further benefitting both you and your franchisees. Inconsistency, on the other hand, can encourage customers to associate any positive experiences with only that specific franchise, undermining your brand’s overall reputation.
Ensuring that uniform quality means taking the time to create exhaustive procedures and training materials for franchise investors and their employees. In many cases you’ll also need to monitor franchisees and work to enforce compliance in the long run. To prepare to do that, you’ll need to work with a legal professional to create a binding and very detailed franchise agreement that describes exactly what’s expected of franchisees, and empowering you to take disciplinary measures against, or terminate, your agreement with non-compliant offenders.
3. Mentor and train franchisees
While it’s not as taxing as opening a new branch under your own power, launching a new franchise is a major commitment. To protect your investment you should to do everything in your power to ensure a new franchisee’s success. Many new franchisees are first-time business owners, and may additionally be entirely new to your industry. Simply handing them your procedures and expecting them to sink or swim is unlikely to result in success. You’ll need to devote time and resources to educating them about your business, and training them for their new role. It’s also a good idea to work on constructing a long-term support network, where more experienced franchisees can mentor newer ones and provide advice and feedback.
Franchising can be a highly profitable and rewarding way to grow your business. If you’re working on launching your own franchise program and need help with financing, Fifo Capital can help! Give us a call today, and our representatives will be happy to work with you to find the right solution for your situation.
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