FRANCHISE: Strategic planning: the franchise package - The Citizen

FRANCHISE: Strategic planning: the franchise package

Thursday September 13 2018

Wambugu Wa Gichohi

Wambugu Wa Gichohi 

New businesses have to prepare business plans to guide their execution so do first time franchisors need to prepare a franchise-specific plan to guide their franchise roll out.

The brand, having existed for a period before franchising, is expected to have a plan that would have guided the brand thus far.

Ongoing businesses prepare strategic plans, new ones prepare business plans. We explore what the strategic plan for a franchise brand looks like.

The two previous articles explored in-depth market research needed before franchising. The outcome of this research feeds into the franchise-specific strategic plan. Apart from the obvious contents of a normal business/strategic plan, additional key sections of this plan are discussed hereunder.

These components in turn feed into the franchise agreement prepared to protect the franchise system.

The first main part of a franchise-specific strategic plan describes the franchise package. Here the franchisor presents six main items starting with the initial franchise fees covering the cost of training and procedure for loaning the franchise operations manual to the franchisee. Second follows the franchise set-up package covering the cost of turnkey package where the franchisor has chosen to set up an outlet before handing over to a franchisee as a turnkey operation.

It also includes the cost of the initial outlet launch marketing campaign, what needs to be done and the cost of pre-launch, launch and post-launch activities.

Third follows the working capital required to operate the franchise, clearly stating the required percentage of unencumbered cash upon joining the franchise system and the available financing options.

International best practice is for prospective franchisees to have at least 50 per cent of the required franchise fees in unencumbered cash before they can borrow either through own arrangements or through franchisee financing schemes. However, some franchisors arrange generous franchisee financing schemes to attract hardworking, young but broke franchisees who show great potential to succeed.

Under such schemes, the franchisee runs the outlet on a rental basis, with profits being held in credit by the franchisor until an agreed point where the arrangement reverts to a normal franchise arrangement.

Fourth, the franchise package also includes any additional capital costs involved such as franchise legal costs, any premium that the franchisee may be required to pay-such as goodwill on rented premises.

Also included are vehicles needed for operations and the cost of converting a home room into an office where such is necessary. Fifth follows the total investment section where a summary of initial franchise fees, franchise set-up package and any additional capital costs are stated.

Finally, the franchise package stipulates the payment terms for the franchise, clearly stating the terms for initial franchise fee-normally a deposit before releasing the franchise agreement to the franchisee, final upon signing of the franchise agreement.

Payment terms also stipulate the deposit refund policy which normally allows deduction of direct costs incurred by franchisor if the prospective franchisee is unable to proceed within a stipulated period after payment of deposit.

The terms also indicate the procedure for giving the franchisee set-up package, which is normally upfront upon signing the franchise agreement or just before commencement of training or a combination of both. The payment terms also stipulate whether payments are staggered over a period or must be made upfront.

The writer is a Franchise Consultant helping indigenous East African brands to franchise, multinational franchise brands to settle in East Africa and governments to create a franchise-friendly business environment.

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