Asking these essential questions which will help smooth your road to expansion, says Brian Duckett, Chairman of the U.K.‘s The Franchising Centre
Many standard, technical and factual questions will come up during negotiation of the master franchise agreement. These will largely be the province of the lawyers and accountants. The following questions are aimed more at getting a feel for the potential relationship.
Why did you decide to embark on an international development programme?
If they’re honest most franchisors would say “Because we had an enquiry from someone in another country”. The chances are the franchisor had never really considered the implications of international franchising but there was someone offering to pay them a large sum so they went for it. An approach from another country is a great reason to start thinking about international expansion; it is not a great reason to start doing it.
Has your board now committed the business to international development?
What we’re looking for here is a timed expansion plan, for example five countries in the next five years of which the priority markets are A and B; and that human and financial resources have been committed to achieving it. International development needs a dedicated executive or an outsourced consultant who has the budget to properly market the opportunity and to process the resulting enquiries; it cannot be part of the job of someone who has other responsibilities within the domestic franchised network.
Which experienced international franchising advisors have helped you?
A team of experienced consultants and lawyers, preferably with associates in several countries, will save money rather than cost money by helping to avoid the many mistakes easily made. Employing an experienced executive who has been there before can also be a good idea. The use of international expertise is a prerequisite to success. Engage it, employ it or make a mess of it is the rule for the franchisor.
What do you know about the market for your product or service in my country?
Whilst the point of master franchising is to harness local market expertise, it’s always comforting to know that the decision to franchise in a particular market is based on some credible, even if only basic, market research. That includes research into how buoyant franchising is in that market as combining both product and franchising research will help with devising a sensible development schedule. Note that comparing the population of, say, the USA with the population of the target market, then extrapolating unit opening figures from there, is NOT market research.
How long have you been franchising and how successful are you in your home market?
If the franchisor comes from a country that has pre-contract disclosure requirements then ask for a copy of the relevant documentation as well as listening to their reply. These days it’s easy to get information from websites and social media, though bear in mind that every franchisor will have upset someone at some point.
Where else do you have international franchisees and can I have their contact details?
To repeat the point above, it’s quite easy to find this out, indeed many candidates will have done so before even approaching the franchisor. However it’s worth checking that the answers from the horse’s mouth match those from the internet. There’s nothing wrong with being a franchisor’s first international franchisee but it naturally carries more risk which might be a useful negotiating point.
What other costs am I likely to have on top of the upfront and ongoing fees?
Most master franchisees will be required, either by the franchisor or by local franchising practice or law, to open one or more outlets themselves to prove and adapt the system for the local market. After all, franchising is about duplicating success. If the concept cannot work in the local market, all that will be duplicated is failure. It may be a long time between opening the first outlet and opening the first franchised outlet and that period will require funding.
I know you’ll teach me how to run an outlet but will you teach me how to franchise?
Operations manuals and training programmes will doubtless exist for operating an outlet but very few franchisors have programmes in place to show a master franchisee how to recruit and manage their future franchisees. If the franchisor cannot demonstrate expertise in these areas, bearing in mind that practices will again vary from country to country, they should at least be able to introduce their master franchisee to a local consulting firm who can help.
How well do I meet your ideal master franchisee profile?
The answer to this demonstrates how serious the franchisor is about long-term success and how much they’ve thought about what makes a successful master. It’s not just about having the money. Some franchisors will prefer people with experience of their sector e.g. food and beverage; others will prefer people with experience of growing franchised networks; others may simply look for the right attitude and previous history of business success.
What’s the recruitment process which will help us decide if we’re right for each other?
If there isn’t a defined process it may suggest that the franchisor hasn’t really prepared properly. If there is a process then the more comprehensive it is, the better. If brokers are involved it’s good to know what their role is too. Most important is to know what happens next, when it should happen and who is responsible for making it happen. Time kills deals; a good process moves things to a close or a rejection in the optimum time.
If things don’t go to plan, how will we get back on track?
The answer here will vary depending on what the problem turns out to be. What’s required is evidence and examples of the team available for on-site or long-distance help. That team could comprise employees of the franchisor or trusted advisors in the local market. What matters is that they exist and that there is a culture of helping master The Franchising Centre
