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Nine out of 10 businesses fail within the first 5 years, 75% of franchises succeed.
Part of that success rate is due in part to having a standard operating procedure (SOP) in place. That standard operating procedure is detailed within a franchise operations manual. If you are a small business or a business just starting out, your chances of success will increase exponentially if you take the time to develop an operations manual. In this document I will refer to our manual as the “Franchise Prototype Manual.”
Essentially, the Franchise Prototype Manual “abstracts the successful workings of the business being franchised such that it becomes a ‘replicable unit.’” – franman.net. For a startup, the manual will document what should be successful going forward and as “production tests” are made, it can be modified accordingly as trial and error discoveries are made. The business will be a replicable unit (it can be cookie-cuttered across the nation) and the system detailed within the manual will be easily trainable. You need to treat the business as if you were going to open up thousands of locations across the nation even if you are not. In the end, the first operation must be a success. It must be the best working system of the model. It must be firing on all cylinders and the system must be complete.
Q: What goes into the Franchise Prototype Manual?
A: Everything.
Whether you like the franchise or not, the next time you walk into a McDonald’s, take a look around and take note of the system in place. From the décor of the restaurant, to the greeting you receive, to the dress of the employee who takes your order, to the distance between the register and the “burger slides”, to the time it takes to receive a Big Mac from the moment you order it and how it is prepared. You are witnessing the result of the Franchise Prototype Manual in action, the system. All of this and more has been laid out in a manual and it is easily trainable and easily replicable, from state to state, from country to country. In theory, the fries you receive in California should be the same fries you would receive in New York. Within this consistency of operations lies one of the keys to your businesses’ success.
Thus, in order to capture the soul of franchising, in theory, you merely have to find a winning business model, detail it and replicate it.
Your Franchise Prototype model will contain a large amount of information regarding operations but, in addition to operations, you should also detail organizational role responsibilities (who is accountable for what - typically illustrated in an organizational chart) and an audit/accountability process to ensure that the manual is successfully executed. The key here is to identify a winning model, replicate that model, audit the model for consistency and execution, and adjust accordingly to outside competitive and economic forces.
Specifically, What Goes Into The Franchise Prototype Manual
Okay, here it is:
1) Site Selection
Quantitative:
Foot traffic, drive-by traffic, area demographics (age, sex, lifestyle), population center, distance to employment centers, highway access, distance to complimentary businesses.
Qualitative:
Your location will speak volumes about your business. Is the business a night club that requires a location in a trendy area of town or a gas station that requires a convenience location in a dense, high population area?
2) Training
This aspect is highly critical to your franchise prototype model. The system must be easily trainable and filled with the lowest skill level possible, still capable of operating the system. The system compensates for skill, but again, the system must be trainable.
Under this section of the franchise prototype manual you need to detail how and when you are going to train (on a regular basis would be nice), the details of the material to be covered (ideally, much of the prototype manual) and new employee orientation.
Who will be responsible for the training?
3) Facility Set-up
What equipment is necessary in the prototype? What does the décor look like? An itemized list of equipment needed with prices would be ideal.
4) Inventory and Supplies
If you are a restaurant this is where the food inventory goes: the quality, the supplier, the price, etc. If an office, this is the paper, the staplers and who supplies them. You would also want to detail any contracts that you currently have set up or intend to set up with suppliers. For your initial business, you need to shop around and get quotes for price and convenience (does one supplier carry most if not all of your equipment?) If the business truly does expand to multi-locations, you would want to revisit these initial contracts.
5) Uniforms
What appearance do you want present to your customers? Should your employees be professionally dressed or are you a casual establishment where jeans would be more appropriate?
6) Marketing Efforts
What types of media will you use? What system will you have in place to follow up on a media campaign to judge its effectiveness? How will you reach your target audience? Who is your target audience?
7) Personnel
a. Responsibilities
An organization chart will go a long way under this section. Who is responsible for what (at every level) and what accountability process is in place to follow up on this?
b. Profile of Ideal Employees
Who do you want? What type of personality do they need to have? Do they need to be a team-player? Do they need a specific skills set?
c. Job Descriptions
Again, building off of the organization chart, what are the key roles in your business (again, at every level) and what are the responsibilities of each role.
d. Job ads and sources of employee candidates
For Recruitment, where do you place your ads or who do you call for referrals?
e. Interviewing and background checks
A standard list of interview questions for each responsibility level would be ideal. Also, you should background check – either learn the ropes of doing this yourself or find a company that will do this for you.
f. Back-ground checks and pre-employment testing
Ditto – what’s the policy?
g. New Employee Orientation and Training
Never de-emphasis orientation and training. This should be a standard format to pass along the standard operating procedure of the franchise prototype manual. It should be packaged, repeatable, and recurring.
h. Personnel Policies and Communicating Work Rules
How do you go about communicating the work rules? What are the personnel policies?
i. Paying Your Employees
When and what is the system you use for payroll? Do you offer direct deposit?
j. Employee Scheduling
How do you process requests off, how do you handle vacation time etc.? If you lay out a plan here you will have consistency and fairness.
k. Employee Management Forms
You should create forms for review time and for “coaching” time.
l. Employee Morale / Motivation
It’s important to have a systematic morale and team-building factor in your business. People don’t want to come to a job they dread day in and day out nor will they be productive. You should consider the following factors: (Introduction would be a description of the system)
i. Introduction
ii. Factors of Good Morale
iii. Signs of Bad Morale
iv. Improving Morale and Motivation
m. Performance Evaluation
When and what is the standard? What metrics are you judging your employees against? Ideally, the evaluation would be tied to growth of the individual as well as some measure against the company objectives.
n. Employee Discipline
Documentation, documentation, documentation … and witnesses.
o. Resignation / Termination
i. Resignation
ii. Termination
iii. Post-Separation Procedures
iv. Final Paychecks
v. Explaining Termination to Other Employees
vi. Giving References
p. Summary of Good Employee Management Practices
What practices do you have in place for management to follow?
DAILY OPERATING PROCEDURES
1) Required Days / Hours of Operation
When will you be open?
2) Customer Service Procedures
This is a very important piece to the puzzle. How will your customers be consistently greeted and serviced time over time?
a. Customer Service Philosophy
i. Customer Feedback
How will you judge the effectiveness of your system?
ii. Customer Complaints
If a customer complains how is this processed? Will your employees blow up or is there a documented procedure and will the complaint be documented?
iii. Our Customer Complaint Policy
Again, this fleshes out the preceding.
iv. Refund Requests
What is the policy? Are you going to except every return that comes in the door and hand cash back? Perhaps gift cards?
b. Service Procedures
Again, the following will flesh out how you will continually provide consistent service and detail selling techniques.
i. Greeting Customers
ii. Answering the Telephone
iii. Atmosphere
iv. Understanding the Product Offerings
v. Working / Interacting with Customers
vi. Job Descriptions
vii. Suggestive Selling Techniques
viii. Passive Selling Versus Active Selling
3) Merchandising Procedures
How will your merchandise be displayed and what does it say about your business. How does your merchandising fit into the overall image of your business?
a. Visual Merchandising Standards
b. Merchandising Products
c. Using Signage
4) Meal Preparation Procedures (This section would apply only to food service businesses)
Again, the key here is consistency. When McDonald’s launches a burger it is made the same from coast to coast, country to country. Where do the pickles go and how much sauce?
a. Prepping Procedures
b. Setting Up Preparation Stations
c. Recipes for All Items
d. Preparation Procedures for All Items
e. Maintaining Inventory
f. Dishwashing / Sanitation Procedures
5) Opening / Closing Checklists
Consistency, consistency, consistency. Would you expect repeat business if you could not consistently keep the place clean?
a. Opening Checklist
b. Closing Checklist
6) Transacting Sales
You don’t want your employees figuring this out on the fly as they are ringing up a customer.
a. Entering Orders Using the POS System
b. Cash Handling Procedures
c. Accepting Personal Checks
d. Accepting Credit Cards
e. Suggested Prices
7) Gift Certificates
It seems that a good policy would be to issue gift certificates for returns instead of cash which can be spent elsewhere. Be wary of customer service implications here though – some customers will be turned off if you are forcing them to buy with you. But, you are opening yourself up for abuse if all returns are handed cash.
a. Issuing Gift Certificates
b. Redeeming Gift Certificates
8) Inventory Management
Who orders, when is it order, how low do supplies get before an order is placed, who are the suppliers, how much can be spent on inventory, in the org chart, who is accountable?
a. Product Ordering Procedures
b. Ordering from Approved Suppliers
c. Changing Approved Suppliers
d. Product Receiving Procedures
e. Storing Procedures
f. Labeling and Rotating Inventory
g. Spoilage
In addition, how will waste be handled? Will you merely toss waste or should it be tracked to avoid “hand-outs?”
9) Operational and Financial Reporting
It is going to be essential that you have timely reports – a weekly profit and loss (income statement) should be at the top of the list. You also need to be tracking key metrics pertinent to your business – how close are you to reaching your goals, if foot traffic is important, how much foot traffic did you have last week. In the organization chart, who is responsible for this role? QuickBooks is a great tool to use for generating profit and loss statements.
a. Features of the POS System
b. Generating Reports
c. Analyzing Reports
d. Sample Reports
10) Franchise Fees and Reporting Requirements (if you are a franchise or plan to franchise)
This is what home office wants to get paid and what reports they want to see. Again, this is relevant if you are planning to franchise soon – not necessarily for our first prototype but if you want, treat yourself as “home office” and ask, what reports would you want to see from your franchisees?
a. Royalty Payment
b. Marketing Fee
c. Required Reports
d. Financial Statements
11) Loss Prevention Techniques
This could also be called “slippage.” How are you going to audit for theft? What is the policy for documenting and follow through on suspected theft?
a. Cash
b. Inventory
12) Required Cleaning and Maintenance
More than likely, customers are not going to frequent a dirty establishment, especially if you are in the restaurant business.
a. Daily Cleaning and Maintenance
b. Weekly Cleaning and Maintenance
c. Monthly Cleaning and Maintenance
13) Safety Procedures
This is a biggie since worker’s comp can be a big cost. An ounce of prevention in your safety programs will go a long way.
a. Preventing Accidents and Injuries
b. Crisis Management Policy
c. Reporting Accidents
d. Worker’s Compensation Issues
e. Fire Safety
f. Robbery / Burglary
g. Unruly Customers
h. Using the Alarm System
SALES PROCEDURES
Again, when that customer is greeted and subsequently dealt with in your sales process, how are they handled? What does the prototype manual say?
1) Introduction
2) The Sales Process
a. Identifying the Customer’s Needs
b. Building Rapport with the Customer
c. Handling Objections
3) Understanding Your Competition
What do they do better? Do they have a sustainable advantage that can tear away your market share or do they stink at what they do or are they offering something that will eventually drive them out of business?
4) Competitive Advantages
What is your sustainable advantage over your competitors? What do you consistently do well, with margin, that others cannot do or do not perform in as quality a manner that you do?
MARKETING
1) Promoting our Business in Your Area
For a single unit, you want a consistent marketing message over time (I’ve read that it takes approximately 20 impressions before a message sinks in) and if you are a chain, you want uniformity.
a. Your General Obligations
b. Guidelines for Using Marks
c. Marketing Standards
2) Logo Specifications
You need a consistent display and it should be trademarked.
3) Required Marketing Expenditures
You want marketing effort here – how much should your units be spending per year on marketing?
a. System Marketing
b. Local Marketing Requirements
c. Regional Cooperative Advertising
d. Grand Opening Marketing
4) Local Marketing
What mediums will you use to get the message out? How will you judge the effectiveness of each campaign?
a. Introduction
b. Direct Mail
c. Radio
d. Television
e. Billboards
f. Magazines
g. Newspapers
h. Yellow Pages
i. Internet
j. Networking
k. Word of Mouth / Customer Referrals
5) Public Relations / Community Involvement
Some of the most successful businesses are those that give back. Your top line goal should be to serve as many people as possible. After that, the money will follow.
a. Press Releases
b. Better Business Bureau
c. Local Chamber of Commerce
d. Team Sponsorships
e. Community Service / Charitable Activities
6) Obtaining Marketing Approval
Again, this would be one of those factor that would be run by the home office if it was an outside the box marketing effort.
MANAGEMENT DOCUMENTS
This is a very important aspect of your business – it allows your managers to have a consistent execution on the policy you have instilled and it provides consistent tools across the board.
1) Daily Cash Sheet
2) Absence Policy
3) Applicant Information Release
4) Sample Applicant Rejection Letter
5) Sample Applicant Acknowledgment Letter
6) COBRA
7) Sample Collection Letter
8) Time Spent During Work Hours
9) Customer Satisfaction Survey
10) Discipline Documentation Form
11) Drug Test Consent Form
12) Electronic Funds Transfer Authorization
13) Emergency Instructions
14) Job Application
15) General Work Rules
16) Holiday / Vacation Policy
17) Restroom Inspection Worksheet
18) Sexual Harassment Policy
19) Smoking Policy
20) Termination Meeting Checklist
21) Employee Time Records
22) Checklist For Handling Workers’ Compensation Claims
23) Workplace Safety Rules
24) Employee Data Form
For many, this manual is going to seem like over-kill but need I remind you of the statistics: Nine out of 10 business fail within the first five years. Seventy-five percent of franchises succeed. This can be attributed to many factors such as name recognition, large required capitalization, proven business model, etc., but at the core of all of this lies the standard operating procedure which is culled from the franchise operating manual. Thus, it is my belief that should you go through the process of creating your own “Franchise Prototype Manual” for your business, you will have laid a strong, fundamental cornerstone for your business and you will be well on your way to success.
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