The 9 traps franchisors need to avoid

The 9 traps franchisors need to avoid

The 9 traps franchisors need to avoid

While turning a business into a franchise can be rewarding, the path to success is not always a smooth one. Nagi Morkos, founder and managing partner at Hodema Consulting Services, points out the pitfalls and takes us through the dos and don’ts when it comes to franchising.

Most people dream big when opening a business. They envision a successful concept, a large clientele and a move to bigger premises. The bolder ones dream of opening a second branch or even expanding their brand at home or abroad. For those who have managed to complete this checklist, franchising can be a logical next step. However, while turning a business into a franchise can be rewarding if done properly, it is far from easy. There are dos and don’ts, and the don’ts are easy traps to fall into. A franchise process that is ill prepared and poorly implemented can ruin a business irreparably.

The following are some of the common mistakes made by franchisors when going international:

Lack of a business plan and franchise model

First and foremost, there needs to be a business plan in place which is well thought through. Elements that need to be considered include identifying your target audience, competitors and tapped markets, and looking into the legislation of a destination country. These tasks should be undertaken even before deciding upon a location and a franchisee, and will determine the initial steps. Advertising and marketing strategies are next, along with a financing plan, since these will make your brand eligible for franchising.

The key, however, is to turn your business into a transparent and replicable model, with a clear vision of where you want to go. A franchisee will then find it easier to understand your plan and their role. Confusion, disorganization and inconsistency are your enemies and can lead to underperformance.

Insufficient capital

Contrary to the beliefs of some, franchising a business costs a significant amount of money, not all of which is provided by the franchisee. The franchisor is obliged to invest funds throughout the entire process to ensure that proceedings run smoothly and successfully for both parties. A lack of capital can be as damaging as a poor concept. Allocating funds in the initial stage to screen franchisees is crucial. Bear in mind, too, that a lack of money could deter solid candidates by making your company appear financially weak. You then risk having to lower your standards, which won’t bode well for your franchising enterprise. Once you’ve signed a contract, bills for license fees and insurances will need to be taken care of. At this point, your financial involvement will be required throughout every step of the implementation phase. This includes: training for the teams; inventory and software procurement; supervising the setup; and finally, delivering assistance to the franchisee, while constantly updating your marketing strategy.

Underestimating costs

Miscalculating the necessary funds is another potential money issue. While overvaluation is unlikely to cause major problems, minimizing them, on the other hand, can certainly be problematic. Franchisees contractually agree to a project that’s financially assessed and miscalculation can lead to distrust, or worse, a lack of funds to continue the franchise venture.

Inadequate screening

Selecting the right franchisee is paramount to success and requires sufficient funds and effort at the screening stage. By failing to select the right candidate, franchisors risk finding themselves stuck with franchisees who prove to be poor representatives of the brand or make unsound business judgments. Spending time on background checks and holding extensive in-person meetings are vital contributory factors.

Neglecting training

Training is an essential part of the franchise process. Providing training to a franchisee in the initial phase ensures they will have a good grasp of the concept, the goals and operational side of the business. Marketing, finance, customer service and legal issues should also be covered. On a broader level, training for staff should involve explaining business policies and procedures, and providing new employees with assistance and manuals. Training programs need to be updated regularly to follow the latest trends and market conditions.

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Nagi Morkos Founder and Managing Partner Hodema

Nagi Morkos
Founder and Managing Partner

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About author

Rita Ghantous

Rita Ghantous is a hospitality aficionado and a passionate writer with over 9 years’ experience in journalism and 5 years experience in the hospitality sector. Her passion for the performance arts and writing, started early. At 10 years old she was praised for her solo performance of the Beatles song “All My Love” accompanied by a guitarist, and was approached by a French talent scout during her school play. However, her love for writing was stronger. Fresh out of school, she became a freelance journalist for Noun Magazine and was awarded the Silver Award Cup for Outstanding Poetry, by The International Library of Poetry (Washington DC). She studied Business Management and earned a Masters degree from Saint Joseph University (USJ), her thesis was published in the Proche-Orient, Études en Management book. She then pursued a career in the hospitality industry but didn’t give up writing, that is why she launched the Four Points by Sheraton Le Verdun Newsletter. Her love for the industry and journalism led her to Hospitality Services - the organizers of the HORECA trade show in Lebanon, Saudi Arabia, Kuwait and Jordan, as well as Salon Du Chocolat, Beirut Cooking Festival, Whisky Live and other regional shows. She is currently the Publications Executive of Hospitality News Middle East, Taste & Flavors and Lebanon Traveler. It is with ultimate devotion for her magazines that she demonstrates her hospitality savoir-faire.

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