DEVELOPING AND EVALUATING FRANCHISE SYSTEM

Franchise System = Franchise + Franchisor + Franchisee

Considerations for Developing a Franchise System

Strong Brand Identity

A strong brand identity is fundamental to any franchise system. If the franchisors brand
name and reputation alone cannot get customers through the front door, prospective franchisees
may question the value they would receive from investing in the particular franchise on offer.
Moreover, in competing for franchise sales, a less-than-memorable trademark alone may cause
prospects to cross your opportunity off the list.

Finally, with a strong brand identity, franchisors can more easily get on the radar of the
highest-quality prospective franchisees: with thousands of active franchise systems to consider,
potential franchise buyers -- like it or not -- tend to use shortcuts to narrow their franchise search.
A recognizable brand or mark can be a key element to staying top of mind with investors.
Prospective franchisors should invest significant time and effort in developing and protecting a
strong brand identity.

Established Policies and Procedures

Also fundamental to building a successful franchise system is having clearly documented,

well-defined policies and procedures in place for developing and operating the business. Along
with name recognition, a tested and executable business model represents the primary value in
purchasing a franchise as opposed to starting a new business from scratch. Franchisors need to
have materials for training and assisting franchisees in the pre-opening phase of their business,
and need to have comprehensive operational documents to guide franchisees throughout the term
of the franchise agreement. In addition to providing value to franchisees, when properly written,

these documents also serve to help protect the franchisor from unnecessary exposure to potential
liability.

Defined Expansion Targets

Once the business decides on franchising as a means of expansion, it needs to decide

exactly where it will be expanding to. Several states (including California, Maryland, New York
and Virginia) have annual franchise registration requirements that entail relatively modest filing
and legal fees. Perhaps the product offering is not necessarily palatable or otherwise suited to a
particular region, or perhaps the market in certain regions is already over-saturated with
competing offerings. Perhaps your goal is to take the entire nation by storm. These are all factors
that should be considered when planning to roll out a new franchise system.

Capacity to Manage and Support a Network of Franchisees

It is also important to consider the impact that franchising will have on your existing
business structure. Many small business owners have successfully transitioned into managing
franchise systems on their own, but if you plan to pursue rapid growth it may be necessary to
bring on franchise-specific personnel to manage and administer the system. Issues will inevitably
arise, and it is important to be able to provide timely and meaningful responses to your
franchisees. Failure to do so may lead to unhappy franchisees and degradation of the system and
the brand, which can have significant impacts on the success of a franchise system.

PREPARING FOR FRANCHISE SYSTEM

I.

CONCEPTS OF FRANCHISE ABILITY

o Profitability
o is the primary goal of all business ventures. Without it the
business will not survive in the long run.
o To most franchise owners, profitability is the single definition of
success.
o Flexibility
o The lack of flexibility inhibits the growth of the franchise and
eventually makes it an unviable business proposition.
o This flexibility of the franchise system should allow the
franchisors to tailor all their marketing efforts to meet not only
the legal requirement of the local market, but also the cultural
and behavioral aspects of the local market.
o Transferability of a Business Model
o A firm that intends to implement growth strategy through
franchising route should be able to ensure whether the business
model is transferable to the franchisee.
o The transferability of a franchise model depends on the degree of
complexity of a system.
o Standardization
o The franchise manual contains all minute details about the
conduct of the business.
o The standardization of the product/service offerings and other
related areas help franchisors maintain uniformity of operation
across the system and consistency in the quality of services
being provided by the franchisees.
o Prototype
o The firm willing to franchise out its business must develop a
successful prototype in order to train the potential franchisees
the way of carrying out its business.
o Trustworthiness
o The firm must, in order to sell franchises, establish its
creditworthiness in the eyes of its prospective franchisees.
o Management Competency
o It is essential that the management should be competent enough
to identify the right entrepreneurial talents at various places,
convert them as territory business partners (franchisees) and
establish a strong relationship with them in order to ensure a
system-wide success.
II.

FRANCHISE FEASIBILITY STUDY

 Feasibility Study
o is essentially the study of market factors and business issues
that can or may influence your business or franchise opportunity
in the future.
o is used to determine if a business or a specific project is achieve.
Feasibility study includes:
MARKET ANALYSIS
ORGANIZATIONAL ANALYSIS
OPERATIONAL ANALYSIS
A potential franchisor expanding their business must conduct a feasibility study in order to:

(a) assess current and emerging competitors,

(b) analyze current business conditions,
(c) the acknowledgement of legal or licensure prerequisites for conducting business,
(d) an analysis of current consumer demands,
(e) and any other crucial developments in the franchise industry that may help or
hinder the success of an individuals franchise opportunity.

The purpose of the feasibility study is to uncover any hidden material not yet discovered by
the potential franchisor, and enables a franchisor to critically assess the future success of their
business expansion.

III.

DESIGNING THE FRANCHISE SYSTEM

Management Competency
o Ensure whether the existing management (the franchisee) has
adequate capabilities and staff to manage the growth of the
franchise system
o FRANCHISEES are appointed to become the integral part of the
franchise system
Competitors Analysis
o Competition on both at the franchise level and also at the
consumer level

Conflict Management
o Anticipate probable source of conflicts between the
franchisor and the franchisees and devise strategies to
resolve them
Economic Impact

o Impact of investments, cash flows and profits of both the

franchisor and the franchisees
Financing Requirements
o Whether the kind of investment the franchise system requires
shall be fulfilled by a potential franchisee
o Alternate sources of finance
Exit Strategies
o An exit clause
o Modality to terminate the agreement
Marketing Strategy
Management Information System
Business Policy
Training and Programme Calendar
Monitoring Mechanism
Support Mechanism
IV.

ASSESSING POTENTIAL FRANCHISEE

1. Support Mechanism
o Familiarities
o Prioritize works
o Focus on not only who will do it but when it has to be done
o Unit supervisor has responsibility for long range plan including total
component budget
2. Being Self-Disciplined
o A franchisee should be self disciplined with regard to time
management and should be able to allocate time for paperwork,
meetings, and moving in the market

3. Ability to work under pressure

o No franchise guarantees income and profit without putting any
efforts. Initial years of setting up a business may be very difficult and
full of teething problems. A franchise should be able to work under
such pressures.

4. Attitude to learn from Failures

o Failures are but stepping stone to success.

o
o
o
o

There is no mistakes in life, only lessons

Every failure is a lesson in learning
Failing is not bad staying down is.
No failure is final

5. Ability to meet standards

o A franchise should be able to create standards and continuously
strive to achieve them.
6. Ability to Take Difficult Decisions
o Not everything would be smooth while running a franchise.
Sometimes a franchisee is required to take difficult decisions for the
smooth functioning of the franchise.
7. Ability to Take a Balanced View
o A franchisee should be able to take a holistic perspective of any
business issues that may emerge during the currency of the
franchise. A biased or a narrow view may greatly hamper the
business prospects.
8. Tolerance to Ambiguity
o Business is a very complex system and clarity may prevail at all the
aspects of business.
9. Receptiveness
o A franchisee should be receptive and have an open mind in
interaction with the franchisor. Franchisor offers a great deal of
support to the franchisee for an effective franchise operations.
10.
Growth Orientation
o A franchisee should have a long term growth orientation rather than
a short term profit orientation. This helps in maintaining a long term
relation with the franchisor.

11.
Ability to Delegate
o It is not possible to do everything on ones own. A franchisee
therefore should be able to delegate tasks to others and get many
things done rather than doing things oneself. It is however, not easy
to delegate.
12.

Internal Locus of Control

o A franchisee should be able to put in adequate efforts to be

successful. A tendency to attribute external factors for successincluding luck could be unfavorable for effective functioning of a
franchise. A franchisee should have an internal locus of control.
o A franchisor should be able to assess these qualities through an
appropriate mechanism.
Prepared by:
ALDABA, Princess Monique
ALVAREZ, Clarissa Jane
ANIERO, Carlo
CRISTOBAL, Crizelle
FORTES, Renz Christian
MENDOZA, Julie Ann
PACE, Luzviminda