FRANCHISABILITY

LESSON 2
 Preparing for Franchising
They perhaps think that franchising is
all about carrying out business through
the legal document called franchise
agreement. The truth however, is that
preparing for legal procedure and
drafting a franchise agreement is the
last step after having decided to follow
as growth strategy.
Criteria to judge whether the business is
franchisable

1.PROFITABILITY- the firm is

willing to franchise its business ,
must assure the potential
franchisees that the business
being offered for franchising is a
proven business model.
 2. FLEXIBILITY- it is a common
practice among all the franchisor to
standardized their product
offering, pricing strategies and
policies, promotional efforts across
the market, store ambiance,
frontage, location and site
selection criteria in several other
aspects.
 3. TRANSFERABILITY OF
BUSINESS MODEL- 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.
4. STANDARDIZATION- the
firm must have a set
procedure and well defined
way to carrying out its
business.
 5.PROTOTYPE - the firm
willing to franchise out its
business develop a successful
prototype in order to train
the potential franchisees the
way of carrying out its
business.
6. TRUSTWORTHINESS- the
firm must, in order to sell
franchises, established its
creditworthiness in the eyes
of each respective
franchisees.
 7. MANAGEMENT
COMPETENCIES – managing
organic growth of an
organization with development
of new product, or new markets
or both is much easier than to
manage in organic growth of an
organization.
Franchise Feasibility Study
1. The underlying business-
the firm is willing to franchise
needs an operating business
with a proven business model.
 2. Product and Services –
it is very important for the
potential franchisor to
ascertain whether the product
or service that are offered
have a sustainable growth
potential.
 3. The systematization of
the business–
customer visiting a franchise
have high prior expectations
about the quality and
consistency of experience.
 4. The support system fees –
the franchisors offers the
business know-how that includes
project feasibility report
including demand and income
projection, site selection,
location planning, interior
development etc.
 5. The potential for the
expansion– it is very important
for the potential franchisor to
make sure that a market
potential has been clearly
identified and the schedule of
entering different geographic
location has been work out.
Designing the franchise system
1.Management competencies – a
franchisor should ensure whether the
existing management has adequate
capabilities and staff to manage the
growth of the franchise system.
2.Competitors analysis – a franchisor
should be aware of the competition both
at the franchise level and also at the
consumer level.
3. Conflict management- a franchisor
should anticipate the probable source of
conflicts between the franchisors and
the franchisees and device strategies to
resolve them.
4. Economic Impact- a franchisor
should consider the impact of
investments, cash flows and profits will
have on the franchisors and franchisees.
5. Financing requirements – a
franchisor should determine whether
the kind of investment the franchise
system requires shall be fulfilled by a
potential franchisee.
6. Exit strategy – while working out
at franchise agreement , a franchisor
should provide an exit clause.
7. Marketing strategy- a franchisor
should have a well-defined marketing
strategy that includes market
segmentation approach, targeting
strategies etc.
8. Management information system-
information generated and maintained
systematically offers the franchisors an
upper hand in managing the franchise
better.
9. Business policies- a franchise
system should have a well-defined
policies pertaining to acquisition of
real state, location planning,
territorial rights etc.
10. Training program calendar- a
franchise system should have a well-
defined training program and manual.
11. Monitoring mechanism- the
franchisor should take care of devising
monitoring mechanism pertaining to site
selection and development, operating
standards financial management etc.
12. Support mechanism- a franchise
system should have clearly documented
procedures for providing support for the
franchisee.