There are a number of criteria a business owner must consider before deciding to franchise his business. Satisfy an enduring need with suitable reward. The product or service offered must have long-term market potential. Franchisees will have been advised to look for business opportunities that take advantage of coming trends and avoid those based on passing attractions or fads. Although franchisees may not expect substantial returns on their investment in the first couple of years, they will expect by the end of the initial franchise period to have paid off their bank loan (as will the bank) and to have achieved a reasonable return on their initial investment.
The franchisor must ensure that there is sufficient margin in the business for the franchisee to pay on-going fees to the franchisor and to make money for him/herself. Possess a clear identity. Potential franchisees will evaluate the clarity and distinctiveness of the franchisor's identity, name and image. They will be looking for an operation that has the potential to develop sales through its brand and reputation. Display a proven track record. As with any good investment an investor will need to be able to evaluate the past success of the concept.
Potential franchisees, and those from whom they may be borrowing, will want to be assured that the franchise is proven, both financially and operationally. Possess easily transferable operational methods. Successful franchises are based on operations that do not require a potential franchisee to have any experience of the particular business. Regardless of the franchisee's experience, the methods of conducting the business must be transferable, allowing the franchisee to run it as successfully as the franchisor.
Have capable management to provide adequate support. For the franchisor, franchising means decentralisation, with greater power being handed down to unit level. It also means the franchisor will have to deal with a new type of workforce whose motivation is very different to that of the company's own staff.
While franchisees can be highly motivated, they can also be very demanding on the franchisor's staff. As the franchise develops the franchisor will be expected to invest in research and development to ensure that the business methods, products and services continue to meet changing consumer needs. It will also be necessary for the franchisor to provide on-going support to franchisees to assist and encourage them to develop their business and to improve its overall performance.
In addition, the franchisor must see to it that the level of support provided is sufficient to ensure that the network as a whole maintains the quality standards set out in the operating manual.
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