Planning your pilot operation an preparing the franchise package elements

Having assessed the feasibility of your proposed expansion, it is now time to consider your pilot operation and the franchise package elements.

By Lindy Barbour

Having followed the steps recommended in our preceding article, you should by now be well into the process of delving into the nuts and bolts of your franchise to formalise your expansion plan. As you get into the nitty-gritty of the expansion plan, you may find it necessary to further refine your financial projections.

The next step after completing the franchisor business plan is to plan your pilot operation. Considering that franchising is about rolling out a proven business model and that potential franchisees want to buy into a ‘tried and tested’ system, a successful pilot operation is crucial.
Most often an existing pilot model will require further refining as new ideas, processes and procedures are tested and honed here before they are implemented in the franchised business units. The more standardized a business model is, the more necessary it becomes to ensure all processes and procedures are perfected in the pilot phase. Fixing and adjusting systems is exponentially more difficult once there are franchisees in the system.

A business that has been in existence for many years may not be regarded as a suitable pilot model and there are several reasons for this. First off, the fact that the set-up cost today, will differ significantly to when the outlet was established means that financial institutions will regard the financial costings as not having been tested. Secondly, the systems and processes adopted as the business evolved are possibly outdated and not necessarily the most efficient. Thirdly, such pilot operations are often family oriented operations and not necessarily geared as an offering to third parties.

Even so, establishing, a pilot model need not mean a halt to your franchise expansion plan or even slow it down. It may just mean adopting a more aggressive approach to your development plans by launching the pilot while simultaneously plotting your expansion plan and developing the franchise package elements.

Alternatively you could adopt a more conservative approach by completing the development work in the ABC of a franchise development package and then applying it to a pilot operation. This pilot operation may be a company owned business or it can be rolled out with the help of a ‘guinea pig’ franchisee who is willing to assist with the development and learn alongside you. At the outset this franchisee may sign an initial agreement with the understanding that the model is still in the testing phase, and in return you could waive the upfront franchise/joining fee and/or reduce the management services fee. Such an arrangement must be documented and limited to a defined period, at the conclusion of which a current franchise agreement will be signed with no expectation that the discount will continue thereafter. Alternatively you may consider a joint venture arrangement.

The final part of your franchise development process involves compiling the documentation that makes up the Franchise Package Elements.

Franchising is about compliance to a concept that works and the franchise package goes a long way to ensuring this compliance. The franchise package is the cement that holds together the fundamentals of a successful franchise. Without these elements to provide a solid foundation, the relationship established between franchisor and franchisee will quickly crumble.

As franchise development consultants we are often approached about compiling franchise agreements prior to the development work being completed. This is not advisable as it can expose you to unnecessary risk. Preparing the package elements by cutting and pasting from documents and agreements used by other franchised business systems also increases that risk. This does not mean that preparing the Franchise Package Elements can only be started at the end; the Operations Manual, for example, can be started as soon as you start thinking about franchising. All the input required to compile the franchise package can be gleaned from the development process and the pilot operation.

A complete franchise package should incorporate the following elements:
• Operations Manual
• Franchise Agreement
• Disclosure Document
• Recruitment and selection programmes
• Training programmes

The tried and tested pilot model and the elements of the franchise package are fundamental to the success of the franchisor/franchisee relationship. Over the next few articles we will delve into the detail and the specific requirements of each of the package elements so that you are in a good position to “measure twice, and cut once”.

Franchize Directions
www.franchize.co.za
lindy@franchize.co.za
+27 11 803 0665