Setting up a franchise is different from a normal start-up because you’re effectively creating two businesses.
In other words, not only do you have to create a franchise operation that’s sufficiently attractive to a franchisee, but you also have make sure that it’s going to make a good profit for you as the franchisor.
You need to be mindful of both these elements, turning franchise development into something of a balancing act.
So, while the franchisee is looking to you to provide as much support as possible by way of training and particularly marketing, you need to control costs so you can continue to manage your cash flow effectively, as well as make the profit you need to keep your own business viable long-term and to invest in future franchise development.Control of your costs is crucial to successful franchise development, particularly during the start-up phase. However, if you listen to many franchise consultants and lawyers, it seems that keeping hold of your dollars is the last thing on their mind when, as a matter of course, they tell you that setting up a franchise is going to cost $100,000-$150,000, and perhaps even more.
But by following that advice and paying the kind of prices they want for doing feasibility studies, creating documentation, developing legal agreements, planning out territories and the like, most new franchisors are going to put themselves under immediate and excessive financial pressure. This could then sabotage their franchise development from the word go.
Over-investing like this when setting up a franchise isn’t necessary, and just means you’ll have less cash available to spend on developing your franchise model. For instance, it might mean that you have to cut back on your marketing, which would lead to lower and slower sales for your franchisees, which in turn would reduce your profits.
But it doesn’t have to be this way…Here’s an example of how one franchisor, Ken Murray, went about building a successful window cleaning franchise, KenKleen, controlling costs so that he had the funds needed for franchise development.
When he set up in 1987, Ken specifically chose window cleaning for franchising because there was no product to buy, no expensive stock to hold and little investment necessary in franchisee training.
That meant Ken could keep things lean and mean. With his documentation amounting to no more than a five-page manual, and with Ken personally training his franchisees on site, there was no fancy spending here.
Ken also ensured that recruitment costs stayed near zero by selecting the first franchisees from people in his church group, and then through friends, family and referrals from customers.A similar low budget approach was taken with marketing. Leaflet drops in local streets proved highly effective and cost very little.
In all, Ken spent just $3,000 or so on starting up his franchise, really just enough to cover his legal costs. As a result, he had more money to plough back into franchise development.
This low cost model also meant minimal upfront investment by Ken’s franchisees. So they quickly saw a return on their money, which made them enthusiastic about building their business. That resulted in more sales, which in turn led to more profit for Ken.
Today KenKleen operates in six States,each managed by a State franchisor – a perfect example of how to go about successful franchise development the low cost way.
To find out more information how we can help you franchise your business you can have a look at our franchise resources. We’ve got an array of programs available to help you franchise your business.
In my Do It Yourself Program, using my How To Franchise Simply Program you’ll learn everything there is to know about starting your franchise. However if you want speed and high level of support then the Done For You Program will be right for you. and you’ll have all your legal documents ready, as well as access to franchise specialists who’ll be working for you on territory creation and operating systems, and providing business coaching.