Master franchise . Franchise company . Business potential . New business opportunities .

 

“Are there any conditions for franchising?”

This is a question from the manager of a ramen chain who visited our company the other day.

The franchise system is a system in which the business model of the business developed by the headquarters is provided to the franchisee, and the franchise fee and royalties are collected in return.

Since the headquarters receives consideration such as membership fees and royalties from the members, the business model of the services that the headquarters provides to the members must bring a certain amount of profit to the members.

The biggest cause of troubles in franchising is that the member stores are not profitable.
Derived from there,
・Supervisor's guidance is insufficient!
・The explanation from headquarters is full of lies!
・No know-how is provided from headquarters!
Complaints such as this will erupt.
Six Perspectives of franchise development feasibility verification
When verifying the feasibility of franchising, we recommend that you verify your company's business model based on the following factors.

➀ Profitability

The franchisee can ensure profitability commensurate with the investment even after deducting the costs incurred after joining the franchise, such as royalties.
As a guideline, the operating income ratio after deducting the costs incurred after joining the franchise, such as royalties, is around 10%. The investment recovery period must be within 5 years, best within 3 years.
However, in cases where corporations are eligible for membership and long-term stable sales are recognized, the investment recovery period maybe 5 years or more.

➁Growth potential

The market for the business you are developing has potential.
It is not a booming business or a declining industry. Even if the business is doing well now, it is not suitable for franchises if its business performance declines in a few years.

③ Originality

It must not be a business model that can be easily imitated by a third party.
In the case of a business model that is easy to imitate, many similar stores will appear as the development progresses, and in many cases, it will be impossible to maintain competitiveness.

④ Operation difficulty

Even non-experts in the business can acquire know-how at an early stage, and it is possible to operate with a certain quality.
In the case of a business model that requires craftsmanship, the quality of operations tends to vary, and as a result, it is difficult to maintain the competitiveness of the franchise chain.

⑤ Reproducibility of success

Success is reproducible (success is not a fluke). In other words, if a store is opened according to the standards set by the headquarters, it has a probability of becoming profitable more than 70% of the time.
In the franchise industry, it is said that the standard is to have three directly managed stores for two years. However, in today's rapidly changing environment, there are cases where two stores have been franchised in about a year.

⑥ Possibility of store development

At least 50 stores must have a market that can be expanded. If there is not enough room to open new stores, it will be difficult to recover the investment in building a franchise system.
Business models that can only be established in major cities limit the number of stores that can be opened, so there is little merit in introducing a franchise system.
It is unknown whether business models that specialize in regional tastes (regional gourmet, etc.) can achieve similar results outside the region.

However, there is no guarantee of absolute success.

In this article, we will thoroughly explain common failure examples, methods to prevent failure, and the characteristics of suitable people. If you are interested in the franchise business, please refer to this article.
There are no clear criteria for ``success'' and ``failure'', but a certain researcher defines ``success'' when the above indicators exceed a certain level, and ``failure'' when they do not.

Note that the ratio of "success" and "failure" varies somewhat depending on the person who calculates it.

As you can see, there are some fluctuations in the ratio, but compared to the success probability of general entrepreneurship and the success probability of franchises,
This number is almost double that of a sole proprietorship.

Even though the franchise has a 70% chance of success, it's not a number that can be dismissed.
Know that some franchises are more likely to succeed than others.

Also, if the selection of the store opening area is not successful, customers will not visit and sales will not increase.

Of the "three elements of management", "people", "things", and "money", know-how and manuals, which are "things", can be obtained by joining a franchise.

Joining a franchise with excellent know-how and achievements is the first step to success.

Mistake 1: Insufficient funds

If the lack of funds interferes with management,
The main operating expenses required for franchise management are as follows.
In particular, royalties are unique to franchises and are operating expenses that require monthly payments to the franchise headquarters instead of using already established management know-how and brand image.

To continue the franchise business, the manager needs to make a trial and error every month so that the above operating expenses can be generated and profit can be generated.

Failure example ② I lacked the ability

The next is failure due to a lack of ability.

Management is not a textbook.

The following are some of the skills and study items that are said to be necessary for franchises.

1. Problem-finding ability
2. Hypothesis-building ability
3. Preparedness
4. promotion ability
5. control ability
6. management
7. tax

The above are not innate abilities, but abilities that can be developed by receiving training and gaining experience provided by the franchise headquarters.

Franchises are advantageous in that they can be managed with the support of the headquarters, but if the owners themselves do not have any skills or knowledge, there is no future.

Failure Example 3: Ignoring the know-how of headquarters

The third is a failure due to ignoring the know-how of headquarters.

In the franchise, you can receive know-how as advice from the franchise headquarters.

This know-how is very useful in the "system for management success" that the franchise headquarters has built over many years.

However, owners who do not listen to know-how even if they are provided with know-how and ignore know-how and run alone are more likely to be in the 30% of failures.

Mistake #4 Lack of publicity

The fourth is failure due to lack of publicity.
In the case of franchising, the franchise headquarters is in charge of advertising and will set out advertising on the Internet and TV commercials.
Recently, advertising using SNS has become active. The owner himself will also be able to get closer to success by advertising.

Failure Example 5: Relying too much on headquarters

The fifth is failure due to over-reliance on headquarters.

In the case of a franchise, the owner and franchise headquarters are business partners. The franchise headquarters provides owners with the know-how and manuals they have built up over the years.

However, the know-how provided by the franchise headquarters does not necessarily guarantee success.
It is the owner who actually manages the business, and the points that require ingenuity and effort are the same as for a normal start-up.

Failure Example 6: Signed a contract with unfavorable contents

The sixth is failure due to an unfavorable contract.

To start a business as a franchise, the owner must enter into a franchise contract with the franchise headquarters.
Examples of unfavorable contract terms for owners include:

Royalties were set extremely high compared to market prices in the industry
The territory system was not set
If high royalties are set, the amount paid to the headquarters every month accounts for a large part of the sales, making it difficult to make a profit.

Also, if a territory system is not set, there is a possibility that stores of the same franchise will open in neighboring commercial areas, and there is a risk that sales will be dispersed.

It is important to check the terms of the franchise agreement carefully before signing.