How to handle an unplanned overseas master franchisee enquiry
What happens when an inquiry to take your brand overseas arrives on your desk? Do you drop everything and focus on this new opportunity or do you follow a process to decide whether it is in the best interest of your business to spend time looking into the potential of international growth. What should you do?
When you look at a successful, fast-growing franchise the following are common elements:
- staying in control of the business with a clear business plan
- maximising revenue without unnecessary risks
- taking opportunities fully understanding the implications on the existing business
- recruiting that maintains a sustainable culture that mirrors the branding of the franchise system
- creating a great management team
- well protected trademarks and trade secrets
- understanding when growth can trigger significant economies of scale
- distinguishing hyper activity from good productive activity
- always having money in the bank and sustainable profits
In a nutshell, your franchise operates on good advanced planning.
So what can be wrong if an overseas business contacts your franchise management team, tells you that your business is everything that they possibly wanted and starts to reach for their cheque-book? You need to ensure that each inquiry is looked at carefully as it may be the best opportunity that you will ever come across. Equally your process needs to quickly identify applications which are wasting your time and diverting you and your management team from properly running your franchise.
1. IS THE ENQUIRY LEGITIMATE?
Why should you assume that the email or telephone call you have received is from an honest independent business person when in fact it could be a competitor or a variation on those famous Nigerian emails?
Just because the enquiry comes from overseas does not mean that you are to avoid requiring completion of an application form and then moving on to a confidentiality and nondisclosure agreement. At the early stages this may be completed informally but it is essential that you have a clear process.
2. WHO REALLY IS THE PERSON WHO HAS CONTACTED YOU?
Once you have established the party’s contact details, establish whether the person is an intermediary, the owner of a business or a free agent seeking that you engage them to look for a master franchisee.
Once you understand the status of the person it is wise to ask for independent confirmation. Austrade provides such a service however, for the sake of cost and speed, significant information can be obtained by contacting local in-country associations and requesting references. The website and LinkedIn page of the applicant should also reveal the name of clients, suppliers and referees that will need to be contacted discreetly.
It is important to keep digging until you receive a personal recommendation that you are satisfied with.
3. WHICH COUNTRY IS THE ENQUIRY COMING FROM?
The country details will immediately alert you to a range of cultural issues and in particular identify whether the concept of “yes” and “no” are understood terms and does the person that you are speaking with have the ability to use those terms correctly.
The proposed location of the master rights allows you to establish whether there is a safe and stable economic environment with cultural acceptance of the goods or services that your franchise provides. Most importantly, whether the taxation system within the country allows for foreigners, extraction of money and taxation treaties.
The country details will tell you whether negotiations are likely to be concluded within a relatively short period time or continue for three years or more. Starbucks took four years to conclude a deal in India.
Many franchisors are unaware of the conservative negotiation methods and owner’s regulatory authority restrictions which will cause inordinate delays even when both parties are fully cooperative.
4. TELL THE PERSON YOUR RECRUITMENT PROCESS
At an early stage it is important to explain to the person the process that you have for determining and granting a master franchise or regional development rights without disclosing any confidential information. This process allows you to understand whether the applicant will commit to the details that you have outlined.
Discuss the applicant’s commitment to:
- signing a nondisclosure agreement
- travelling to your head office for a discovery visit
- payment of funds in advance
- training which needs to be completed satisfactorily
- transparent disclosure of the applicant’s existing and past business activities
- disclosure of the applicant’s current business plans
- put in personal time and funds to the franchise
- establish franchise units within a strict timescale
- communicate regularly with management within your franchise
- welcome and assist you as you regularly inspect and oversee their activities
- payment of a deposit and initial costs of granting the franchise
- ongoing payments and supervision
- changes that will in time be made to the franchise system as it grows
- dealing with competitors
- cost of documentation
- anticipated costs of fit out, stock, signage and import duties
- ongoing growth and expansion of the business
In completing these discussions it is essential to be a great listener and identify and recheck whether the applicant is legitimate and satisfies item 2.
5. REJECT OR PROCEED
At this early stage it is important to re-evaluate all of the current information that you know about the applicant. Now is the time to end or delay the current discussions prior to more executive time being allocated to the enquiry. A decision to proceed will need to be balanced against a wide range of other opportunities for your franchise system to exploit.
Your checklist should include the following considerations:
Is there a cultural fit with the applicant? Any hesitation to positively endorse the applicant should lead to rejection as this is a person that you are likely to have to spend thousands of hours dealing with over 10 or more years, a person that will be a key influence over the reputation of your franchise brand and a reference used for other international expansion
Does your existing business plan mean that now is the wrong time to continue with this enquiry?
Can your management team deal with this enquiry and if it results in the grant of a new country master franchise, can you expand your management skills and team to oversee the international expansion?
Establishing a detailed costing and budget for each aspect of completing the negotiations and installation of your franchise system into the new country. This is the starting point for determining the initial franchise fee payments and whether any of your costs need to be amortised across future royalty payments or the deal needs to be restructured into a joint-venture.
Does the new potential project provide a better return on investment than other projects already being completed?
Has your intellectual property been secured in the target country and if not will the applicant agree to delay negotiations until all necessary registrations have been completed?
Will the details of the reputation, attitude and business plans that you know of the applicant be compatible with the ultimate global positioning of the brand?
Can the time zone, differences in language, economic stability, ethnic mix and legal and taxation regulations be accommodated in a sustainable manner without exhausting your time, energy and patience?
Does the target country provide a legal system which will enable you to protect your brand and complete enforcement or termination of the franchise rights that are granted to the applicant?
Will your executive team be safe and not subject to unnecessary prejudice when conducting inspections within the target country and be unrestricted in their right to leave the target country?
Does the applicant have the finance and experience to complete the adaption of the franchise system to meet customer expectations in the target country?
Is sufficient information available to identify whether the project will be profitable?
Can an exit from the country occur on satisfactory terms?
Take great credit in the fact that you receive an overseas enquiry. The fact that the applicant has chosen to spend time understanding your franchise brand is a great recognition of the effort that you put into building a great franchise. Many enquiries will be a total waste of your time and a few will be great.
It is important that your management of these enquiries does not reject an applicant too early as you could lose most of the legitimate applications and be left with the time wasters.
What your brand needs is the ability to quickly identify legitimate enquiries which will work within your business plan. Where your management team does not have the capability of assessing these, external assistance can be available.
However, whether you use outside assistance or existing management, the key is to implement a rigorous early investigation of each applicant and not continue further without fully understanding how careful you need to be in your selection process.
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