How to Start a Franchise Business

Paving the way for a new business is not easy. However, opening a franchise provides the benefits of entrepreneurship with the resources of a large parent company. Business ownership at any level is risky, but franchising can bring career fulfillment with a measure of support. Franchising allows for bigger businesses to branch out and grow, whilst providing entrepreneurs and small business owners with the opportunity to run their own operations. It is therefore imperative to know the steps that need to be taken on how to start a franchise business, set for success.

To start a franchise business, entrepreneurs should firstly run a pilot unit to gain valuable insights. It is best to set up a new unit from scratch and run it separately from the core business.

Once the franchise network is established, you could sell the pilot unit as a going concern, or turn it into a ‘lab’ for developing new products, systems, and procedures. You could also use it to train new franchisees and staff.

Entrepreneurs need to a complete set of financials and a plan that identifies the franchises expected development over the next five years.

You would need to then develop a franchise package. The franchise package contains intellectual property and the practical knowledge relevant to the business. It includes marketing and training materials and documents including the operations manual, disclosure document, and franchise agreement. Franchise Administration can assist with drafting these documents to proficiently assist you with you business franchise.

The operations manual describes how to replicate the franchisor’s success. Among other things the operations manual includes, a brief history of the business, specifying the corporate identity, providing detailed instructions on every aspect of operating and managing the business.

The operations manual and franchise agreement must work together. The franchise agreement explains the franchisor and franchisees’ rights and obligations, while the operations manual explains how to ensure compliance.

You can also create a franchisor manual to help new franchisor staff understand the business. It ensures compliance even when head office staff change, to ensure consistency.

Franchisors must provide qualified franchisee prospects with a disclosure document, as required by the South African National Consumer Protection Act (CPA). This is done at least 14 days before the franchise agreement is signed.

The disclosure document includes, among other things, a description of the nature of the business, the franchisor’s trading history, full details of the investment required from the franchisee, trading projections based on the performance of existing outlets, a list of existing franchisees with their contact details, and an auditor’s certificate confirming that the franchise company is a going concern.

You must then draft the franchise agreement. The Consumer Protection Act describes the franchise agreement as a document that governs the business relationship between the franchisor and the franchisee. For more information on the specifics of this statutory document, get in touch with Franchise Administration.

Lastly, it is imperative to create marketing materials. Effective marketing materials are essential for attracting quality franchisees. Whether you print your marketing materials or publish them digitally, the key is to ‘tell it like it is’.