Franchise Management For Dummies. Mazero Joyce
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Название: Franchise Management For Dummies

Автор: Mazero Joyce

Издательство: John Wiley & Sons Limited

Жанр: Зарубежная образовательная литература

Серия:

isbn: 9781119337232

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СКАЧАТЬ is just what it says it is: As a franchisee, you obtain the right to own and operate one franchised business from a franchisor.

      Over the years, most franchise systems have grown one franchise at a time. It is the classic method and, until the past few decades, was the most common type of relationship in franchising. As people looked for a way to get to their dream of independence through business ownership, franchising became their chosen vehicle. In a single-unit franchise, the franchisee (often along with family members) generally manages and supervises the business on a day-to-day basis. It is how their family makes a living.

      Although a single-unit franchise is the classic method for franchise system growth, it does have some weaknesses for franchisors:

      ❯❯ Franchisors generally experience slower growth with a single-unit strategy than with a multi-unit approach, and the growth can be more costly on a unit basis because franchisors have to locate a new franchisee for each location.

      ❯❯ The franchisor has many franchisees to work with, and those franchisees may be less sophisticated and less interested in taking business risks than larger, multi-unit franchisees.

      ❯❯ Because each location is individually owned and operated, single-unit franchises tend to be more expensive to support than when one franchisee owns and operates multiple locations.

      ❯❯ In some markets that may be attractive to a multi-unit franchisee, the presence of single-unit franchisees in the market may make the opportunity less attractive to multi-unit operators who don’t want to compete for customers or locations.

      Although there may be some disadvantages to franchisors, there are more single-unit franchisees looking for opportunities than there are multi-unit investors. Also, because the locations are managed directly by the franchisee and generally are a significant part of the franchisee’s family income, single-unit operators tend to be better focused on operating their locations to brand standards and contributing to the neighborhoods in which their businesses are located. That’s because they usually live in the community, their children go to the same schools, they attend the same churches, and their customers are their neighbors.

Figure 2-1 displays the single-unit franchise relationship tree.

      © John Wiley & Sons, Inc.

       FIGURE 2-1: The single-unit franchisee family tree.

       Growing a family one franchise at a time

      As single-unit franchisees prosper (see the preceding section), eventually they will want to acquire another franchise from the same franchisor. After all, they have an understanding of the business, have a relationship with the franchisor, can project the return that an additional unit can generate, and know the types of locations that work best. Initial training likely won’t be needed, and some of the key employees they already have may be perfect managers in their second and third locations.

      As they add additional locations, their little chain now can leverage off of the prior locations by sharing staff, inventory, storage, and back-of-house resources like bookkeeping and payroll processing. Investing in additional franchises is a terrific way to grow, because with experience their risk is generally lower than when they made their initial franchise decision, and even though they have more franchises, the relationship between the franchisor and franchisee is substantially the same.

      However, growing one location at a time is different from agreeing to operate multiple locations from the beginning, because you don’t usually obtain a reduction in initial or continuing fees and you’ll continue to share the market with other franchisees. But with more units and more money invested, you will tend to be noticed more often by the franchisor and its staff because they are hoping you will continue to grow and grow and grow.

      It’s important to understand that franchisors will periodically update their franchise agreements, and franchisees who acquire additional franchises are likely to find variations between their original contract with the franchisor and the new franchise agreement for later units. Your franchisor may also include cross defaults in the agreements, meaning that if you can be terminated at one location, the franchisor reserves the right to terminate all of your franchises at the same time – even if every other location is operating perfectly.

      

As with all franchise agreements, you should have a qualified franchise attorney work with you. They may be able to also help you negotiate some changes to your agreements including personal guarantees, cross defaults, and changes in fees that other franchisees may be required to pay.

Developing a Territory on Your Own

      Instead of growing one location at a time, many franchisees instead choose to become multi-unit franchisees right from the start. By entering into a multi-unit development agreement, a developer obtains the right and the obligation to open a specific number of locations during a defined period of time and usually within a specified contiguous geographic area.

      For example, say you want to open ten hair salons in your town. You can go to the franchisor and buy one franchise at a time (see the preceding section), but you have certain risks:

      ❯❯ You may have to share the market with other franchisees from the system. And by the time you’re ready to grow, the best locations for your brand may have been taken by other franchisees, or worse, the franchisor may have achieved critical mass in your market and is no longer offering additional opportunities where you want to grow.

      ❯❯ Even if the franchisor is offering a better “deal” to multi-unit developers, it may not be offering that same deal to single-unit franchisees, and you likely won’t have the necessary leverage you need to negotiate the changes you want.

      To avoid these risks, you can enter into a multi-unit development agreement and agree to open and operate your multiple locations, say over the next several years, and the franchisor will grant you an exclusive market to develop your little chain.

      

If possible, you want your multi-unit development agreement to include market exclusivity, ensuring that you are the only franchisee operating in your area. Frequently, though, there may already be locations up and running in the area you want, and you’ll need to decide whether market exclusivity is important to you prior to making your investment decision.

      A multi-unit developer will typically pay the franchisor a fee for the right to enter into a multi-unit development agreement. As you sign a franchise agreement for each new location, generally a portion of the multi-unit development fee is credited by the franchisor against your initial franchise fee. (More on this shortly.)

      Expect that your development obligations will be specific. For example, instead of simply agreeing to ten units over five years, your agreement will usually have precise dates that you must meet, such as requiring that you have your locations open and operating on January 1, July 1, and so on during the term. These opening dates are important to the franchisor, so if you think the time provided for development is too restrictive or ambitious, this is something you and your attorney should discuss with the franchisor before you sign the development agreement.

      

Don’t expect the franchisor to allow you to slip on your opening dates later on – missing those dates might trigger certain terminations and cross default rights by the franchisor, including the loss of your development rights and the fee you have paid.

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