Writing a Business Plan for a Franchise – part 2

Writing a Business Plan for a Franchise – part 2

( Writing a Business Plan for a Franchise (part 2

The advantages of a franchise:

• Data exchange within the company chain – data exchange amongst the different branches provides all branches with a competitive advantage over business opponents that are individual and not part of a chain. An important point to mention, is that the more thorough the research is, the more difficult it will be to transfer the data amongst the different branches, since in most cases, the research is fitted specifically to the local market in which it operates in. Therefore, the concluded local data is less relevant to other branches and vise versa.
• An efficient work method in heterogenic markets – company chains handle production, distribution and marketing. The geographic distance exposes the company to various, local market conditions which require an adaptation to the maximized performances, which vary from one branch to the other. Since there is no one standard operating procedure that can maximize all performances in heterogenic markets, a franchise is a suitable and efficient solution.
• A solution for difficulties in monitoring and supervising – A franchise offers an effective solution for big companies that are dispersed over a large geographic range, this makes the monitoring process much harder since they are located a distance away from each other and from the company headquarters. A lack of monitoring might increase employee absences and directly effect business profits.
• The maintenance is operated by the franchisee – The franchisor dismisses itself of all responsibilities that have to do with maintenance and upkeep of the different branches.
• Utilization – Franchisees are characterized by a high motivation and a great will to succeed, due to a personal interest that’s involved in the business.

The disadvantages of a franchise:

• A limited control structure – The more the Pure Control method is used, the harder it gets to supervise.
• A franchisee using the Research Method – The research method characterizes franchisees and exposes them to great risk, since it is considered to be innovative, experimental and sometimes precedent.
• Lack of experience – In many cases, the franchisee lacks management experience.
• An attempt to harm the brand name – The franchisee purchases a branch from the franchisor. The brand has its name and reputation which were established over the years. A risk might rise in a Pure Control Structure, since this structure strengthens and empowers the franchisee, giving it complete control over the branch. In such case, wrong decision making or an inadequate management performance, might harm the brand name.
• I will conclude with a few main emphasized points that were brought up in different researches that show a correlation between the different franchise structures and the success/failure rate of businesses: The total amount of cash invested in the franchise system by the franchisee, increases the trust of the franchisor in him, and increases the involvement and dedication of the franchisee in the branch, due of the capital that was invested in it. As a result: New franchise systems that require a personal, high capital investment have less risk of failure.
• Experienced franchisees are most likely to have good management abilities and sometimes have a great deal of knowledge regarding the local market. As a result: Franchise systems that are run by experienced franchisees have less risk of failure.
• When the geographic distance between the franchisor and the franchisee is greater, there is a bigger chance that the franchisee may deviate from the pre-signed agreement and might create a difficulty to the monitoring process of the manager. As a result: Franchise systems which are relatively close geographically to each other have less risk of failing.