Small business owners often think about franchising out their model in hopes of reaping great returns. However, for every successful fast-food, hotel or daycare franchise, there are scores of others who failed to have the proper measures in place to become a successful franchisor.
“It’s harder than people think. You need a large amount of royalties to make you successful,” says JaJa Ball, president and co-founder of Colbert/Ball Tax Service. Founded in 1995 in Houston with one location, Colbert/Ball Tax Service now has 330 locations in 23 states and is one of the few African American-owned franchises recognized by the International Franchise Association. You have to have a lot of support, a lot of capital and a lot of expertise. Ball offers the following advice for would-be franchisors. —Alan Hughes
Make sure you have a win-win business model for both the franchisee and franchisor. What that means is that any time you’re doing a franchise system, you have to build one that’s mutually beneficial. “You can’t build a system that’s one-sided,” says Ball. “You have to ask yourself how long will it take for your franchisees to get their investment back. We try to get our franchisees to break-even or make money within a year.”
Have the proper capital to invest to build a franchise system that lasts. “When you build a franchise system, there are a lot of hidden costs you may not be aware of,” he says. “You have to be able to have the right people, the right amount of capital to put into your marketing program and legal costs related to your FDD [Franchise Disclosure Document].” The FDD is a legal document which is presented to prospective buyers of franchises in the pre-sale disclosure.
Research your top competitors and develop your niche in the industry. “One of the first things we did was to evaluate what our competitors were doing—where were they advertising? What was the marketing and brand they were putting out there?” says Ball. “So just from a marketing standpoint, we realized we had to do something to put our name out there and help our franchises be successful out there.”
Choose the right legal firm and structure for your best defense. “You have to have a legal team because you’re dealing with legal issues 365 days a year, 24/7,” advises Ball. Between regulation, franchise and vendors issues, Ball says legal issues crop on regularly and suggests identifying a firm that’s credible, yet affordable. “Just doing a Franchise Disclosure Document can be pricey, but if you got a firm that can represent you and believe in what you’re doing and get behind you is a great asset to your company.”
Ensure you have a proven, successful example of the system you are franchising. An option is to start a pilot program where individuals can operate a location in a different area. Offer them training and support in return for feedback and be prepared to make changes based on that feedback. This will give you valuable experience as you learn how to provide support and training to multiple locations. “We did a gradual increase and learned how to support multiple franchise owners before we fully franchised,” says Ball.
Build strong support systems throughout your departments for the franchisees. This means providing access to legal and accounting experts, IT support, etc. “In order for your franchises to be successful and continue to trust the organization, you have to have support—individuals that they can call at any time to help with their issues,” suggest Ball. “Franchises have to see value in you. If you don’t have support, your system can corrupt and fall apart quickly because franchises can’t trust you to help them grow their business.”
Remember that happy franchisees are the key to franchisor growth. Ball says happy franchisees are a must, and the best way to ensure that they’re happy is by providing the support and environment for them to succeed. “When you have successful franchisees, they help build your brand,” says Ball. “Without that, your franchise is going to die, because you’re going to lose the referrals. And when people want to start a franchise, they don’t want to hear from the franchisor, they want to hear from another franchisee.”
Develop a system that promotes fun throughout the organization. According to Ball, the franchisees cannot get the impression that the franchisor sees them as nothing more than money-generating machines. “Franchisees like to work with an organization that promotes success as well as well-being. If you put a little fun into it, it promotes a sense of security to them that you’re not just looking at them as money-makers,” he asserts. “To keep franchisees committed to your brand, you have to make sure you’re bringing an attitude that shows that the franchise is an enjoyable organization.”