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Franchising your business - getting started print Print

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You have thoroughly investigated the pros and cons of franchising, as explored in the companion ANZ Biz Hub articles on the topic. Now you are ready to get started. This guide offers some practical tips on your priorities and the logical steps to take.

Research the industry

Your first step is to research and understand as much as possible about the franchising industry. Start subscribing to franchising magazines (such as Franchise New Zealand magazine,, research franchise specific websites such as and join The Franchise Association of New Zealand (FANZ)

Attend a few franchising trade shows organised by FANZ or local economic development agencies. Ask to be put in touch with franchisors in industries similar to yours who have established a franchise programme and who might be able to give you some valuable tips and guidance.

Your local library will also contain some useful books on franchising: you should find plenty of material on the subject.

Your aim in the course of this research is to gather knowledge but also to select a group of expert advisors who can give you financial, legal, managerial and marketing advice on franchising so that you can avoid as many of the pitfalls as possible. Your team of advisors should include an experienced franchise consultant and a lawyer, accountant and bank who specialise in franchising. It is important to get advice from your team of advisors, but just as important to do some basic research yourself to widen your own knowledge. The research will save you money. For example, to save the time and expense of advisors having to explain the basics of franchising to you, you can arrive with a developed list of questions and issues. This is why talking to successful franchisors that you will meet through networking in the franchising industry can be worth gold.


Developing a budget

Now is the time to develop a budget and do some financial modelling for your franchising plans. Every business is distinct, so there is no norm or standard figure that can be plucked out of the air. What you will very likely be told by existing franchisors is that you will need more funds than you think. Fees from the first few franchises that you sell may do no more than offset your investment in the franchise programme. So when you do your financial modelling adopt a conservative approach and work out with the help of your advisors how many franchise outlets you have to set up to reach break-even. Building up some financial reserves in advance will help. Also ensure that your business continues to generate robust and reliable cashflows. It's not uncommon to hear that the parent (original) business has to support or subsidise the franchising programme for the first few years. Take these factors into account:

  • Once you have decided to franchise your successful business format, you have effectively created a second business. It may be a good idea to create a separate company as a vehicle for your franchising programme to protect the original business as far as possible.
  • This separate company will help you to monitor and make transparent whether the franchising programme is paying its way and when it starts making a profit. Without a separate structure, you might continue to pour money into the franchise programme from your original business without being fully aware of this subsidisation.
  • You should brief your major stakeholders such as suppliers and particularly lenders and an ANZ Business Specialist about your plans. You may need special lines of credit or extra funding from stakeholders to carry out your plans. You will certainly need their support.

Be aware that the franchising programme will consume a good deal of your time and energy. It's important to safeguard the continuing success of your original business and make sure that it does not suffer through neglect.

At some stage you may need an extra staff member to manage the franchising programme. Most franchisors underestimate the amount of 'hand holding' that franchisees require. In addition, someone has to monitor quality and service standards, reporting, compliance and group marketing. Think about how long you'll be able to handle all this yourself and what kind of administrative structure and staff you'll eventually need.


Building credibility

1. The Disclosure Document

There is no escaping the fact that franchising has been tainted by 'get rich quick operators.' It's therefore important to build credibility by creating documents and systems that fairly and transparently reflect the true state and worth of your business and its franchising potential. These documents need to be available to your stakeholders as well as to potential franchisees, who should receive copies well in advance of any commitment to purchase a franchise. Another important credibility step is to offer a 'cooling off' period of say 30 days, so that any franchisees that find the franchise unsuitable can extricate themselves without financial loss.

The Disclosure Document is similar in structure to a business plan. Its purpose is to tell the franchisee about your business. It should:

  • Give a brief history of your business and its management.
  • Identify the core values and key drivers behind your business.
  • Explain why the business concept is suitable for franchising, including a review of the industry your business is part of.
  • Explain what part of the business cycle your business is in (growth, maturity or decline).
  • Outline your vision and strategic thinking for the business: medium and long term.
  • Identify the strengths, weaknesses, opportunities and threats facing your franchise.
  • Outline the management structure of the franchise, including the training and support systems.
  • Identify the supply chain and how key supplier relationships can be established to add value to franchisees.
  • Outline marketing strategies.
  • Detail the financial track record of the original business.
  • Provide financial forecasts and budgets for a franchise outlet.
  • Identify and resolve locational issues (site selection) and key success parameters for the business.

2. The pilot operation

Before you sell any franchises, it is necessary to run a pilot operation to demonstrate that the original business can successfully be replicated, managed by someone else, and operate profitably. Your Disclosure Document should include the track record of this pilot operation and provide evidence of it's success. Potential franchisees will be keen to visit the pilot operation and it can also be used as a training point to let them experience the business format in operation before they commit themselves to the franchise.

3. Operations Manual: developing standard systems

This step involves probably the most work and you might consider employing a franchise consultant to help you with the task. You now have to document all the systems and processes used in your business that have led to its success. This should result in a detailed, but easy to follow operations manual of all processes and when they are completed (daily, weekly, monthly, etc). These procedures and systems should be field tested and refined through the pilot operation and through the subsequent feedback of franchisees. The purpose of the operations manual is not only to make the franchise simple to run, it is also about ensuring that franchisees achieve agreed standards. For example, the franchisee should be required to monitor the solvency efficiency and profitability of the franchise at regular intervals through key business ratio analysis. See the ANZ Biz Hub articles Understanding your Balance Sheet and Understanding your Profit & Loss statement.

4. A Franchise Agreement

Your next step is to seek professional help to draw up a franchise agreement. This step is covered in more detail in our article Franchising your business: the legal issues.

5. A Code of Practice and Ethics

Another credibility building step is to include a Code of Practice and Ethics for the whole franchise programme. You can view (and adapt) the Franchise Association of New Zealand's Code of Practice and Code of Ethics at

6. Attracting the right franchisees

If your concept is very successful you may not have to advertise for franchisees, they will find their own way to your door. If you do have to advertise, you can do so in a specialist franchise magazine, local newspapers, or online (see Resources at the end). Remember that an applicant may have the money, but may not be suitable as a prospective franchisee. For example, people who are strongly entrepreneurial may chafe under the restrictions of a franchise system. On the other hand, you do not want a person with no business skills or experience at all, unless you have unlimited time and patience. This article, Tips on buying a franchise, which looks at franchising from a prospective franchisee's point of view will help you identify the right type of person.

7. Establishing new franchisees

You need to work out an induction and training process that will make the franchisee feel a valuable part of the franchise group. Be aware that they might need considerable hand holding at the start. Think about including existing franchisees in this training process. For example, the trainee could spend some time working alongside a successful operator. This could take a lot of the training and support pressure off you.

Tip: Warning signs

Potential franchisees who argue too pointedly about the investment requirements of a franchise or your business format may turn out to be unsuitable and candidates for future disputes. For example, some may wish to invest less robustly than you require at the outset. They may argue that they can complete a business fit out for $25,000 whereas your minimum standard requires at least $40,000 investment. The whole point of selling a franchise is that you are selling a proven business format.

Franchise candidates that from the outset try to second-guess you on all issues might be happier starting their own businesses. They are often only looking for some magic 'success formula' at a low cost.

Many franchisors help their new franchisees to establish a basic client base. For example, if you advertise nationally, you can pass on the names of people or companies who respond to the appropriate franchisees. Another possible source of customers might be existing franchisees that have more customers than they can cope with. You could arrange for them to 'sell' these sales leads to the new franchisee for a fee or commission.

8. Growing your franchise operation

This involves:

  • Putting in place systems to monitor the franchise.
  • Reviewing the performance and targets on a regular basis to take into account external factors
  • Visiting all of your franchisees on a regular basis.
  • Being easily accessible for your franchisees. For instance, by cellphone or email.

You might also think about establishing a franchisee board that could get together to discuss ideas and experience and have some input into the running of the franchise.

9. The future: from 'Wow!' to 'Why?'

Established franchisors will tell you that the nature of your relationship with your franchisees will change over time. If you've prepared the franchising programme thoroughly, franchisees at the outset will be delighted with the proven business format they have bought and grateful for the level of training and on-going support they receive. However, this will inevitably change as they mature and grow more confident in running their outlet. After a few years their attitude might change to: 'Why am I still paying this royalty and these fees? I know how to run this business now. Without the royalty it would be far more profitable.'

Successful franchisors therefore need to think medium and long term and address the challenge of continuing to motivate franchisees and demonstrating to them the important benefits and added value they receive from being part of a franchise team.



  • Franchising does offer great potential, but you need a proven and well-established business concept first.
  • Most people underestimate the cost involved and the level of commitment needed to develop the sound, simple, transferable business systems that will make the concept work.
  • You should have a commitment to supporting your franchisees and to building a rapport with them.
  • You need good monitoring systems (such as mystery shopping) for checking on their performance to maintain consistency and quality standards.
  • Your marketing plan should include further opportunities that will add value and continue to motivate your franchisees.
  • Adding continuous value through the development of strong and cost effective supplier relationships to leverage bulk purchasing power and aid in ongoing profitability.
  • You need to build long-term commitment through a strong vision and strategic planning for the business.
  • Ensuring that continuous industry and competitive assessments are maintained to allow for appropriate tactical plans to be effected to mitigate current and future threats to the franchise system.




Visit your bookseller for the latest copy of the Franchise New Zealand magazine or visit its web site for many useful articles and tips on franchising.

Franchise association and book

The Franchise Association of New Zealand (FANZ) (call 09 523 4452 or visit offers a helpful publication, The New Zealand Franchisor's Guide, with a more comprehensive account of the advantages and disadvantages of franchising. You could also ask to be put in touch with someone who has franchised their own business and who might be able to give you some valuable tips and guidance.

Joining FANZ also entitles you to some free initial consulting on legal, accounting, coaching and consultancy topics. Other useful ANZ Biz Hub articles include:


Further information:

To talk to an ANZ Business Specialist:
Call 0800 269 249
Visit your nearest ANZ branch


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