STRUCTURAL RE-ALIGNMENT
Addressing Sub-Optimal Franchise Configurations

The previous Franchize Bulletin discussed the importance of structuring a franchise system optimally from the outset. In this issue we focus on Structural Re-Alignment by summarizing some common symptoms, reasons, hurdles and solutions to poor structure. To recap, examples of key structural components include:

Franchisee and franchisor obligations FSO structure Franchised form (e.g., single-unit, sequential franchising, area development etc) or combination implemented Initial, royalty, marketing, management/service fees and /or other income streams Territorial delineation, restrictions and protocols Franchise terms and renewal System documentation

Inappropriate structural configurations can have disastrous ramifications for franchise system growth, development and long-term survival prospects.

What are the symptoms of poor structure? The symptoms or warning signs are wide and varied, but four common examples include:

• Franchisor costs exceeding income, and perhaps relying on franchise sales to cover operating costs
• Insufficient funds to match competitor’s national marketing
• Wide variance in franchisee unit standards and performance
• Issues with powerful, non-performing multi-unit or master franchisees

Invariably, these and many other symptoms could have been avoided. Instead, poor structuring decisions are made, often due to:

• Not seeking specialist franchise assistance with strategic planning and feasibility analysis at the outset
• Copying or imitating other franchise structures, formats and/or operations
• Making poor structural decisions on an ongoing basis
• Not foreseeing changes in the business operating environment

While the franchise concept has many excellent advantages relative to many alternative business arrangements, it is not well suited to rapid and fundamental changes in direction/structure. Consequently, extreme care must be taken when (i) addressing past structural decisions and (ii) determining appropriate solutions.

We strongly suggest franchisors with issues consult with a franchising specialist with a wealth of franchising experience (with different franchises and franchise structures), and one who has already been through the process of helping franchise systems in times of need/crisis.

Regular monthly meetings with an experienced franchise consultant can help foresee issues and formulate solutions.

> Return to news list