How To Start A Franchise

Naseem Ahmad Jawa, director of retail at SPRET Retail, explains how, when and why you should consider setting up a franchise.

Franchising is the single most productive system of distribution for a brand. It connects the operation with different parts of the
world and enables companies to go global in a cost-effective manner.

The Middle East is considered to be the most promising and opportunistic international franchise market as it is one of the fastest growing markets in the world today, in one of the most investor friendly regions.

The UAE’s franchise business alone is worth more than the $300 million, and that figure is expected to grow in the near future.

The Middle East markets are lucrative in terms of volume with a presence of more than 400,000 high net-worth individuals, each with liquid assets of more than $5 million to invest in new businesses.

That means that more than 13 per cent of the population are very rich and together have available funds of more than $2 trillion. Moreover the region has a young upwardly mobile consumer market, keen on leisure and consumer spending.

WHY WOULD A COMPANY CHOOSE TO FRANCHISE?

Franchising allows companies to expand without the risk of debt or the cost of equity. Since franchisees provide the initial investment at the unit level, franchising allows for expansion with minimal capital investment on the part of the franchisor.

In addition, since it’s the franchisee, and not the franchisor, who signs the lease and commits to various service contracts, franchising allows for expansion with virtually no possible liability, thus greatly reducing a franchisor’s risk. For companies with limited resources in terms of staff or time, franchising is often the fastest way to grow. Thus franchising not only allows the franchisor financial leverage, but it allows him to leverage his resources as well.

WHAT ARE THE KEY STEPS TO FRANCHISING A BUSINESS?

Once you decide to start a franchising program, there are a few critical research and market analysis details that need to be done. You must identify the potential markets for expanding the business through franchises in terms of number of players in that market, demand in that market, consumer behaviour, business laws and so on.

Once this is done and you have dentified the key markets, you then need to identify the prospective franchisees by creating a franchisee profile of the top players by studying the size of their business, their growth rate, team size, financial capabilities, training and development, market share, number of stores/ brands owned etc.

Based on all these findings, a business plan is developed, a marketing plan, which guides your approach to the franchising program.

WHAT TYPE OF BUSINESS AND SIZE OF COMPANY DOES A FRANCHISE BENEFIT?

If properly structured, franchising can allow small companies to more effectively compete with much larger competitors. It can also allow larger companies to gain the advantages of highly motivated unit management while reducing overheads.

As such, franchising is an option that more and more companies should explore, whether big or small.