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HOW CAN I FRANCHISE MY BUSINESS SAFELY?

by Win Robinson,
last updated 29/07/2009

How can a prospective franchisor ensure confidentiality from a consultant invited to prepare a franchising proposal and what might a franchising plan might cost?

The first thing a prospective franchisor should do to protect the confidentiality of their material is only to approach consultancy firms that have a good reputation. They should observe how the prospective consultancy firm is run. Is it a professional looking firm? Do they do things in an orderly and logical way or are things done off the top of their head and on the run? Look at how they present themselves - is their promotional material professional looking and helpful? Do they give you straight answers to straight questions or do they avoid many of your questions?

Good consultants will have a company profile about themselves which should describe the services they offer, give a summary of the personnel working for the firm and their experience and qualifications. They will have a sample list of clients and a good consultancy should have no hesitation in supplying you with the names of suitable clients for whom they have done work in the past. Make sure you contact a few and take up the references. Don't just choose the latest ones - older clients will have had the opportunity to find out the real value in the market place of the work done for them.

A good tip is to ask at the beginning of the first meeting with the consultancy that what you reveal to them is to be kept completely confidential. For a responsible consultancy this will be second nature, as they will treat all their clients' work as confidential. They should be just the same as your lawyer or accountant.

To impress upon the consultant the importance that you attach to confidentiality you should ask them to sign a confidentiality covenant. Reputable consultancies will have these as standard forms and will be very used to signing them - we have even had our office swept for bugs at the behest of one client. Having a confidentiality covenant signed will show your consultancy that you are serious about keeping your intellectual property totally confidential.

I understand that prospective clients can be understandably nervous about passing on information to consultants. However, once you have gone through all your checks and are satisfied that you have made the right choice, trust your consultant and give them all the information they need to do a top job for you.

Costs

Asking the cost of a franchising plan is a little like asking the length of a piece of string. However, I will go through the process and try to shed some light.

The first consultation is usually free of charge. This generally averages about an hour and aims to give the would-be franchisor the answer as to whether his business can be franchised or licensed in some form. We also explain the fundamentals of franchising and licensing so that the inquirer understands the basic principles and show them appropriate examples.

The first stage in actually working on a Franchise Development Programme is the Strategic Planning Stage. This consists of an assessment of the feasibility of franchising, resolution of potential issues and the preparation of a Franchise Development Plan. There are two major parts to this plan: the Feasibility Study and the Implementation Plan. It is very important that this first stage is done well and that you use the optimal franchise structure to achieve your objectives. Depending on the nature and complexity of the business, for a small to medium-sized company this is likely to take some four - six weeks and cost somewhere between $9,500 - $16,000.

The second stage is to write up your systems. The contents of your manuals will have been determined in stage one (Strategic Planning), but now they need to be written up as detailed franchise manuals for your franchisees to follow. While some clients are already quite advanced in this area, most require the drawing together of a lot of information from different sources (especially those who keep it all in their head). For this reason, a single, average-sized Operations Manual can take from six-eight weeks to prepare and cost $10,000 - $15,000.

Once you have completed these two stages you have the information to give to a specialist franchise lawyer to draft the franchise agreement. In our consultancy we write a legal brief for the lawyer so that they don't have to read the Strategic Plan or wade through the manuals. Franchise agreements vary from law firm to law firm, and again according to the complexity of the system, but take maybe two-three weeks to prepare and cost anywhere from $5,000-$12,000.

The fourth stage is to prepare the Recruitment Documentation. A profile of the ideal franchisee and recruitment process will have been worked out in stage one so it is now time to write the copy for the franchise summary, the overview, the applicant background and qualifications, the various forms and covenants, and the Disclosure Document. This will take another four - six weeks and cost perhaps $7,000-$8,000.

To save you doing the maths, the total time for this fictitious company is some 16 - 23 weeks and the cost somewhere between $31,500 and $51,000. Some of the work can be done concurrently, but we generally find it takes about three months plus to work though a properly constructed programme.

At the end of this time you should have a franchise proposition which has been thoroughly developed according to best practice, and which will not only be more marketable as a result but also has a higher chance of success for all concerned. You will now be ready to go to market - but that's another story...

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