FOR IMMEDIATE RELEASE

When considering franchising your proprietary system you need to begin with the end in mind. For example, in your business plan your exit strategy needs to be clearly defined. Both you as a Franchisor and the Franchisees need to have a clear entrance and exit into and out of your system to create the maximum value for both.

So many times an operator will have a great concept and run one or several locations successfully in a quick period of time. No time had been spent in creating systems to sustain the growth and the operator is approached one day to consider selling the concept to a new franchisee unrelated to the ownership in place. Now comes the tough part.

What is my concept worth? How do I keep a consistent product in the marketplace to my high quality standards? How do I brand my concept? How do I ensure that my royalties are paid and accurate? How much do I sell the franchise fee for? And so on.

The following three items provide the highest value for a franchisee both in the entrance and exit when attracting top potential operators to adopt your brand. First you must document your system of operating your restaurant from food preparation and delivery to hiring, to paperwork and create a manual for a lay person to follow step by step. Next, you must create an accurate accounting system to report results on a monthly basis that has been reviewed by an outside accountant and agrees to the tax filings. Finally, you must create a customer list that is alive and working in a database form. But let's define the franchising concept.

Franchising is a form of commercial cooperation. The franchisor grants a party "the rights" to use a business and marketing system in order to cause a trademark to be more readily recognized by the public. The franchisor grants the rights in order to guarantee the use of a uniform business system for the presentation of products and services to consumers. In exchange for the right to use the trademark and the system, the franchisee pays fees to the franchisor in the form of an initial license fee and an ongoing royalty fee.

More than a method of distribution, franchising is a way for the franchisor to derive financial benefit from its expertise without investing its own capital in the franchisee's business. A franchise relationship differs from a distribution or dealership arrangement when the agreement involves the use of a single business name, the use of uniform business methods including a prescribed marketing program, and the payment of royalties in exchange for benefits granted by the franchisor.

The major difference between a business organization and a franchised organization is the realization that the franchisor and the franchisee are interdependent and that one cannot succeed without the other. They are symbiotically interrelated, mutually related, strategically allied, and involved in an exchange relationship. Each is independent of each other, yet intrinsically linked to the business network. The Franchisor is responsible for managing groups of people coming together in order to form economies of scale: 2+2=10. Economies of scale develop from mutually shared vision and everyone marching to the same drummer. Mutually shared vision and uniformity in a system results from trust which evolves from effective communication".

The benefits to you are: quicker expansion with less personal monies invested freedom from daily management and employed staff, faster brand development; capital for growth through fees and royalty without loss of equity, greater buying power with distributors, and attracting an intrinsically more involved business owner (franchisee) generates a more productive operation.

The benefits to your franchisees are: proven model for business, experienced mentors to help solve problems, known brand name on a local, regional or national basis, less capital required to achieve success, expert systems to run the business, real estate and finance systems to start the business, on-going assistance and training programs, independence without being alone, research and development and idea creation through a collective group of invested operators.

Consider this real life scenario. A tax client, doctor, comes into my office this year burned out from his normal day to day practice that he has been doing for the last twenty five years successfully. He has accumulated a sizable amount of $500,000 to invest into an activity different from his medical practice. He poses the question to me to suggest a viable restaurant model that had the following criteria. He loves to cook.

The Doctor asked me for three things. First, I don't know a darn thing about the restaurant industry but if you provide me a manual and a mentor in a well documented system I could learn. I need the manual to walk me through my daily activities so that every detail is available for me to follow so that I can duplicate the results of operations that are being achieved by other similar operators owning the specific brand I will purchase and operate.

Second, I need you as my accountant to ensure that you will have access to all of my records and that all income and expenses are recorded accurately based on how my system teaches me to operate the new brand I purchase. I want a report monthly by the fifteenth of the following month to review with you key performance indicators in accordance with the National Restaurant Association so that I can determine my growth and identify any deficiencies immediately.

Finally, I need a franchise brand that has a system through a point of sale or other method to capture my customers' information so that I can effectively and efficiently market to them on a monthly basis. I need a system to capture not only phone numbers but birth dates, anniversary dates, and reporting to tell when the last time this customer visited my store so I can send them an invitation to come back.

After my Doctor client had left and given me this assignment I thought about what I teach my clients who decide to sell any business they are involved and we try to come up with a business valuation. Coincidentally, the same three items mentioned above: systems, books, and customer lists are the three most valuable assets we use to value businesses for purchase or resale.

Creating a new or adding to your existing franchise brand should always consider not only the entrance into your system but the exit. Focus on considering the exit strategy not only for yourself as the franchisor but for the franchisee. To provide a well documented exit strategy for the potential Franchisee to take to his accountant for advice as to whether he should invest in your brand is critical. Create a scenario for any advisor investigating the propriety of your system. Always have an exit in mind. Life happens. A potential franchisee usually has investors or supportive spouses and those parties need convincing as well with regards to the substance of your branded system.

This article was written by Michael J. Rasmussen, CPA. Please visit www.pmq.com for more franchising information.

For more information on franchises or to search for a franchise to purchase please visit www.franchisegator.com.