Once you have signed the franchise agreement the franchisor will provide you with the necessary information you need, such as the company’s management structure, marketing plan, demographics, daily operational procedures, start-up and ongoing costs.Most business plans follow a fairly standard format which can be found in business books and by searching online.Other experts to consult include experienced business people, or somebody who has experience as a franchisee.
But in franchising, we are talking about growth on steroids, and this mistake might be multiplied 100 times or more.
And, since there are no expenses associated with this $5,000, this mistake comes right off the bottom line.
So do the math: $5,000 in annual lost royalties multiplied by 100 franchisees = $500,000 Multiplied times a 10 year franchise term (or longer) = $5,000,000 Lost enterprise value assuming 10X earnings multiple at exit = TOTAL LOSS $10,000,000 And an incorrect royalty is only one of a number of different business decisions that a new franchisor will make early in the process that could impact long-term profitability.
Just a few of the many others include: By following the steps outlined above, the business structure and franchising strategy that we ultimately recommend for our clients is based not only on best-practices in franchising and within the client’s industry, but also on a close examination of our client’s culture, goals, business economics, and the resources available to implement a franchise program.
You can find many resources in business books and online by doing a web search to help you with the layout, structure and content of your business plan.
The important thing to bear in mind is that you are combining parts of the two companies: franchisee and franchisor.
Every organization comes to franchising from a different starting point – with different strengths and weaknesses.
Competing with an established franchisor by going head-to-head in an area of their strengths can be a huge mistake.
Sometimes, they will just ask their lawyer for input.
But while good franchise lawyers are invaluable when it comes to legal issues, they are unlikely to have the business experience, education, or expertise to develop sophisticated cash flow models and the organizational development plans that should accompany them.