Should I grow my business by franchising?

Franchising expert Michael Sherlock provides some expert advice on transforming your small business into a franchise network

Have you been doing brisk trade in your business and wondering whether franchising might be an effective way to expand? Franchising is a common way to access capital and build market presence but it’s important to research as it’s not a one-size-fits all solution to growth.

A systematic approach

Michael Sherlock was CEO of Brumby’s Bakery for 16 years and is now an Adjunct Professor, Franchising and Franchising Operations, at Griffith University.

He says business owners shouldn’t start thinking about franchising until they have at least two profitable outlets that have been running for at least five years. 

“Many people try to go into franchising right away but you’ve really got to prove the system and have a good track record,” he says. “That means having a multi-unit, duplicable system that’s been successful over an extended period.

Next, you’ll need to comprehensively document your business’s systems. Picking quality franchisees to replicate them is crucial. A high-performing employee who’s keen to strike out for themselves is the best option, Sherlock says.

“I’ve seen lots of franchisors who think, ‘This is cookie cutter – boom time, let’s go!’ and they end up not surviving,”

Pitfalls

“I’ve seen lots of franchisors who think, ‘This is cookie cutter – boom time, let’s go!’ and they end up not surviving,” Sherlock says. As with any enterprise, trying to grow a franchise network at a fast pace can lead to problems. Such as hastily approved franchisees offering shoddy service and damaging your brand. Or setting up shop in locations where there is no awareness of or demand for your product or service. 

Minimising your risk

Ensuring you have the right business insurance is even more important if you’re looking to become the next Jim’s Mowing. The bigger your franchise network gets, the more likely customers, suppliers and even your own franchisees tend to believe they can get a big pay out (through the courts or as ‘go-away money’) if they feel you’ve done them wrong somehow. There will also be issues around, for example, whether franchisees are expected to arrange their own insurances or whether they will be expecting the franchisor to do so. Once you’ve developed a well-known franchise brand (think Baker’s Delight), you should also think about insuring it for crisis management. Your Steadfast insurance broker can work with you to provide tailored advice and ensure you have appropriate cover.

Planning checklist

     
   

If you can answer yes to the following questions, franchising may be an excellent way for you to grow your business and turbocharge your profits.

  1. Has my business stood the test of time?
  2. Is there wider market demand for the product or service I sell?
  3. Is my business sufficiently systemised that an outsider could run it?
   
     

Tips from a franchising maestro

With Michael Sherlock at the helm, Brumby’s Bakeries expanded from a clutch of company-owned stores in the 1970s to a franchise network which peaked at 320 stores before his departure in 2007. Here are his tips for replicating his success.

  1. Be fair

    Do you see expansion via franchising as a licence to print money? It can be but only if you allow your franchisees their fair share of the spoils. “If people come into your system and invest their money and work hard, there’s got to be the potential for them to generate a healthy return,” Sherlock says.

     

  2. Partner wisely

    What’s the one-ingredient recipe for a successful franchise outlet? A good operator, Sherlock says. You’ll minimise dramas down the track if you’re discerning about who you allow into your network, rather than handing out franchises like lollies to anyone with the necessary cash. (Both potential franchisors and franchisees can get advice on creating and maintaining mutually beneficial partnerships from organisations such as the Franchise Council of Australia and Franchise Business.) 

     

  3. Keep investing

Be willing to invest in research and development, effective marketing and constantly fine tuning systems to boost the efficiency and profitability of your franchisees. “You need to offer an equitable transaction whereby people work hard and follow your systems and you support them to the hilt to do so,” Sherlock says.

 

 

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