Milo Smith, the firm's principal, spent a fair portion of his business career
developing and being a part of the management of three recognized names that
employed franchising as part of their method of distribution. He has
also done considerable franchise development consulting for additional firms and
has counseled firms not to use franchising as a method of expansion.
Franchising as a method of expansion provides business owners with two forms
of scarce resources; management and capital. In exchange for other
people's money and talent, the franchisor must be comfortable using negotiation
as a method of managing and controlling its franchise system. There are
two capital costs to reach profitability with a franchise system. They are
the initial development costs and the negative cash flow that must be sustained
until the system has sufficient franchisees to break even. The rewards to
the committed franchisor are substantial growth, national brand name recognition
and significant financial returns.
The macro-level tasks required to launch a franchise system include those
defined for company-owned multiple-unit
expansion plus the following items relating specifically to franchising.
Franchise
Feasibility Study
Perform
Industry Comparative Analysis
Develop
Profitability Model
Franchisor
Franchisee
Establish
Franchisor Fee Structure
Franchise
Sales
Royalties
Advertising
Fund
Develop
Sale Methodology
Develop
Market Penetration Strategy
Create
Development and Rollout Plan
Legal
Compliance
Direct
Trademark Search And Registration
Develop
Appropriate Franchise Agreements
Single
Unit
Multi-Unit
Area
Development
Area
Representative, Master or Regional
Deposit
Agreements
Offering
Circular Preparation
Establish
Administrative Compliance Systems
Franchise
Sales
Develop
Sales Plans
Develop
Presentation Materials
Video
Brochures
Supporting
Sales Literature
Website
Develop
Advertisements
Develop
Ad Campaigns
Establish
Public Relations Program
Recruit
Franchise Development Manager
Develop
Franchise Sales Training Program
Franchisee
Financing
Develop
Financing Model
Locate
Financing Sources
Establish
the Value of:
The
Business System
Quality
of Recruiting System
Quality
of Franchisees
Obtain
Financing Commitment
Three
examples of franchising are Auto Glass, Coffee
and Custom Homes.
