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Courting Premium Sales
Have you ever dreamed of selling your book to a large corporation? A sale that would register several thousand copies of non-returnable product on the book sale meter? What's that? You've never thought of it you say? Well, never fear! It's not too...
Credit Card Charge-Off - What Does It Mean And What Should You Do About It?
Have you been told by a creditor that your debt is about to "charge-off"? Did the bill collector make it sound like you will be ruined financially if you allow this catastrophe to happen? If you're behind on your bills, unable to keep up with...
NEGOTIATE LIKE “THE GAMBLER” TO WIN
Most executives relish upcoming major business negotiating sessions with about the same zest as they do a root canal at their friendly dentist. The stakes are always high. Negotiate too hard and the deal is lost. Be too timid and you will leave...
What is a Business Analyst? (Part 1)
What is a Business Analyst?
Today the term Business Analyst is synonymous with a career in
the IT industry but the most successful and valuable analysts
are those who understand the "business" rather than those who
understand IT.
So...
When Debt Collectors Cross the Line - Bogus Threats & Illegal Collection Tactics
If you are behind on your bills and on the receiving end of
collection phone calls, you will probably hear collectors make
some very threatening statements. While most debt collection
professionals try to stay within the boundaries defined by...
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Franchise Opportunity - 5 Questions to Ask About The Franchise
Franchising has become one of the most important and effective
business growth strategies in the past quarter century. Although
franchise system development dates back centuries to the times
when monarchs awarded territories to tax collectors, current
franchise business systems date back decades to the Singer
Sewing Machine strategy of granting rights to individual
business people to sell Singer products in various regions.
A Franchise strategy allows the Franchisor to penetrate,
develop, and dominate markets on a simultaneous basis. A
Franchise system also allows for each individual Franchisee to
own their very own business, and yet participate in, and garner
value from, a proven Franchise system.
A good Franchise system allows the Franchise Company to gain
market share quickly, which serves as a barrier to competition,
and helps build the Brand, which in turn creates exponential
value for all stakeholders - including each Franchisee.
So how do you identify a good Franchise system? Well it makes
sense that if you want to find out about strategies, culture,
and compatibility, then you should ask the right questions. The
answers can then be assessed to determine if the fit is right.
The following discussion covers five questions that should
always be asked by the Franchise Candidate. If a Franchisor is
either unwilling, or unprepared, to answer these questions, it
should be a strong indicator that the fit may not be right.
How Big Is The Market?
The Franchisor should have a good handle on the available market
for the product or service that you will be offering as a
Franchisee. Presumably the Franchisor has done extensive
research on the current market size, as well as the potential
market size for the future.
The Franchisor should be willing to share that information with
you so you can assess the data to make sure that the opportunity
is going to be of sufficient size to satisfy your own goals. You
may have to sign a non-disclosure agreement first, but the
information is important to you, so it must be assessed. The
whole idea of Franchising is to ensure that the goals and dreams
of the Franchisee, and those of the Franchisor, are unified. If
the market availability will allow for strategies to be
implemented by you, which are consistent with your goals, and
those penetration goals are congruent with the Franchisor's
goals, then all is good.
If it's a long-standing and stable market, then there should be
plenty of statistics to back up that conclusion. If it's a new
and burgeoning market, there should be analysis that you can
assess to give you a comfort level that you, together with
Franchisor, can go get a significant share. If it's a fad
market, or limited life market, then the strategies should
reflect that, as should the agreements.
The caution is that if the Franchisor is wishy-washy about the
market, or is unwilling to discuss the issue in depth with you,
that should be a significant warning sign.
Who are The Competitors?
The Franchisor should have a good understanding about the
competition, and how much market share they command. It doesn't
matter how big a market is if it's completely saturated, unless
the Franchisor has specific strategies to eat someone else's
lunch.
The Franchisor should be able to talk to you about specific
competitors, what their strategies have been, what they will
likely be in the future, and how the Franchise system intends to
penetrate that market.
The Franchisor should also be willing to discuss the future
competitor that may appear on the horizon. They may not be
willing to disclose their specific strategies about dealing with
that eventuality - at least not without erasing your memory
after the discussion. However, a general discussion about the
issue should give you some solace that they have thought about
their approach, and that you feel comfortable with their
preparedness.
Again, if the Franchisor is not sufficiently prepared to discuss
current competition, as well as future competition, then warning
bells should go off.
Is The Franchise Scalable?
This issue relates to your own targets, as they all do. If you
want to grow a your business to leverage the Franchise process
in multiple locations, or by leveraging the results of a number
of employees, or by any other criteria appropriate for the
business, does the Franchisor allow for that growth? If leverage
is one of your goals, and the means and market are available in
the Franchise system, what is the cost of that leverage?
Some systems that provide services, won't allow you to hire
employees, while others encourage it. In the case of the systems
that encourage it, you should ask about the cost of adding units
in that strategy, and the training process for any new employees.
In retail environments, the leverage will come from
additional
locations, or physical expansion, or additional product lines,
so your questions must relate to that availability, and the
capital cost required to execute the strategy.
Other related questions include asking about geographic
restrictions to where you can build business. Again, some
Franchises have geographic restrictions, while others allow you
to build business without reference to the map.
The important thing is to ask the questions, and understand the
answers to make sure your future growth goals can be met by the
system you are assessing.
What Are The Franchisor's Growth Plans?
You may think that a Franchisor's growth plans are not important
to you once you become a Franchisee. However, there are a number
of factors that illustrate that a Franchisor that has continuing
growth plans will increase the value of your investment.
The opposite of growth would be shrinkage. That doesn't sound
too good does it? The middle point would be stagnation. That's
not too attractive either. So why is growth important?
One important factor is related to the penetration goal stated
above. If there is room to penetrate, and the Franchisor doesn't
have strategies to meet that market, guess want will happen.
Yep, competitors will penetrate, and through their growth
strategies, they might eat some of your lunch. It is logically
better for you that the Franchisor has growth strategies that
will address that market need, and grow value in the Franchise
system, as opposed to rolling out the welcome mat for
competitors.
A second factor is that a normal phenomenon in Franchising is
that each Franchise that is added to the system, and each new
customer that is added to the system, and each new employee that
is added to the system, will increase the value of the brand.
Volume carries clout in price negotiation. Messages are carried
by more lips. More signs, more transactions, more bank deposits,
more customers, more vendors - it all translates to increased
brand recognition. Increased brand recognition should translate
to more business for each Franchise.
In addition, growth strategies will generally drive up the
Franchise Fee. That means that if you pay $2 as a Franchise Fee,
and growth strategies drive the Franchise Fee up to $5, then
that becomes the base value for your Franchise because the
market will pay that price. That's a nice return on investment
if it's achieved over a reasonable timeframe, which of course is
driven by the Franchisor's growth strategies.
O.K., so there are lots of good reasons that growth is important
as opposed to shrinkage or stagnation. However, you must also
feel comfortable that the strategy is sensible. That's why you
need to ask the questions, and you should expect well thought
out answers that makes sense to you.
What Exit Strategies Are Available?
There are many factors that should come into your analysis
before becoming a Franchisee. The folly often lies in not
considering this part of the equation at the very time that you
are considering entry into the Franchise in the first place.
That's exactly the time when you need to give significant
consideration to the value of the asset that can be created.
Ongoing profitability, cashflow, and emotional fulfillment, are
all important criteria in the process of making an informed
business decision about becoming a Franchisee. But then so is
the growth of the asset value you create, along with the ease of
realizing that value at the time you intend to exit.
You need to discuss these issues with the Franchisor as you
consider the Franchise opportunity. If the Franchisor isn't
willing to discuss these issues, then it may mean that there
isn't a solid basis for asset growth, and current profitability
is the only consideration. You have to determine how important
this particular part of the equation is for you. The important
part is to ask the question so you can assess the response in
terms of your own goals and dreams.
There are many more questions that must be asked of the
Franchisor. These five questions will give you a good basis to
understand the general strategies and thoughts of the
Franchisor. That way you can determine if you have unified
thinking, and if that answer is affirmative, then you can craft
more specific questions about the system.
To receive a free copy of an E-Book titled 'Franchise
Opportunity - Making The Right Decision' by Dennis Schooley,
email that request to corp@schooleymitchell.com.
About the author:
Dennis Schooley is the Founder of Schooley Mitchell Telecom
Consultants, a Professional Services Franchise Company. He
writes for publication, as well as for
schooleymitchell.blogging.com and franchises.blogging.com, in
the subject areas of Franchising, and Technology for the Layman.
http://www.schooleymitchell.com, 888-311-6477,
dschooley@schooleymitchell.com.
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