New Franchisors: How Not to Fail?

I’ve often been asked this question. Here’s what I typically tell them. As new franchisors, you have two important roles to play – perfect your business model, and nurture your new franchisees. This includes prospecting, securing, training and supporting them. Unfortunately, they cannot do all these if they do not have external guidance and the skills to develop systems and training programs to this end. This is because franchising skills is not commonly found within an organization. Success can only be achieved from properly shaped franchise systems and processes from the very beginning.

The Franchising Process and Potential Pitfalls to Avoid

The following is the typical process a business goes through if it wants to start a franchise system and common pitfalls that can lead to the franchisor’s failure.

Phase 1: 3P Feasibility Study

Potential franchisors need to objectively evaluate their business model in relation to people, processes and potential. This is the 3P feasibility study. This is the most important phase of the whole process. If a business model fails at this stage, nothing else you do matters beyond this. At this phase, the franchise consultant needs to examine the entrepreneur’s motivation to franchise and his sincerity, honesty, integrity, reliability and willingness to teach. If these values are missing, then there is a high chance of franchise failure. The franchise consultant must be truthful and upfront about this to the entrepreneur.

Unfortunately, this phase is often glossed over both by the prospective franchisor and the franchise consultant for their own personal reasons.

1. The prospective franchisor has already made up his mind, and

2. The franchise consultant doesn’t want to lose a client.

Phase 2: DDIY

If the business owner passes the feasibility study, the next phase is the DIY phase that I see entrepreneurs go through.

In order to save costs, prospective franchisors tend to think that they can do-it-yourself (DIY). Scores of free franchise materials available online make it even more tempting to do so. This is tempting fate.

Without proper understanding of franchising, nor the expertise competent consultants and skilled franchise lawyers, failure awaits. Many things can go wrong at this stage – failure to comply with laws and regulations, contract clauses are not watertight to protect the franchisor’s business and franchise system, etc. I would rather they DDIY – Don’t Do It Yourself.

Phase 3: Franchise management

Congratulations! If you reach this phase, it meant that your business model and franchise preparation plan have survived phases 1 and 2 and is in a better position to succeed.

First-time franchisors must realize that franchising is not another arm of their main business. In truth, it is another highly complex business in which franchising skills are essential for success. Past success in franchising the business is not easily replicated when expanding the franchise itself. You cannot simply delegate this responsibility to existing staffs within your organization, as they are usually not equipped to handle the demands of franchising. Your franchise growth projections will suffer.

Franchise management requires dedicated staffing with specific skills, knowledge and experience in franchise operations, legality and marketing. You must be willing and able to recruit such personnel in order to compete with other franchises out there. So you need to put these human resource structures in place before you start looking for franchisees. Franchise management will make or break a franchise.

A Successful Franchise

To build a successful franchise, an entrepreneur will need to have high HOPES:

1. Hire the best help you can afford to guide you through all phases of the franchise process.

2. Objectively assess your business according to the 3P feasibility study. There is no short-cut to this.

3. Patience is needed to grow your franchise. During the gestation period, consider having a competent mentor to help guide you. This can be in the form of quality consultation.

4. Expect unscrupulous franchise middle-men who is only looking to earn a commission from “helping to franchise” your business.

5. Skills in setting up your business previously may not seamlessly translate in franchising skills. Remember this.

Fortunately, many prospective franchisors have the good sense to engage franchise professionals at the initial two phases. However, it is in the franchise management phase that new franchisors often attempt to do it themselves. Apart from good fortune, building a successful franchise requires suitable franchise expertise. Such expertise is not normally among the new franchisor’s skills-set. Hence, one should really consider professional franchising management expertise to complete the phases of successful franchising.

Wayne Soo

Wayne Soo
Managing Partner
FIDUCIA LLP, Certified Public Accountants

CPA Singapore, CA (Malaysia), FCCA (UK), FCMA (UK), FIPA (Australia), MSID, MBA (Manchester), Certified Fraud Examiner (CFE) USA,Certified Management Consultant (CMC)

Wayne Soo gained his more than 18 years of auditing, accounting, management and financial experience initially with a Top 4 public accounting firm (both in Malaysia and Singapore).

Since 2005, Wayne is also an active audit and insolvency practitioner of his own firm, which is on the audit panel of both NCSS and MCYS. To date, Wayne has been intimately involved in providing assurance, tax and advisory services to clients in many different industries. He holds 5 professional accounting qualifications and is a member of national accounting bodies in Singapore, Malaysia, UK and Australia.

Wayne can be reached at:
Fiducia LLP
Certified Public Accountants
1 Goldhill Plaza
#03-35 Podium Block
Singapore 308899.

T: (65) 68468376
F: (65) 62346306

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