Before Franchising in Taiwan: Use a Pilot to Test Whether Your Store Model Can Be Replicated

A successful store run personally by its owner is not necessarily ready to be franchised. For operators planning to build a franchise network in Taiwan, the purpose of a pilot is not to open another impressive showcase store. It is to demonstrate that a different, properly trained operator can deliver consistent service using the established methods while bearing realistic costs.

1. Set the assessment criteria, not just an opening date

A pilot can be a new company-owned store or an existing outlet handed over to a different team to manage independently. The former makes it easier to observe the settling-in period for a new store. The latter may cost less, but you must identify the advantages provided by regular customers, an experienced team and an established location. Its results cannot simply be treated as representative of a new franchise outlet.

Before starting, prepare a one-page pilot brief setting out the store format, target customers, staffing, equipment requirements and scope of head office support. Avoid continually adding resources during the test that would be available only to a showcase store.

The assessment should answer at least three questions:

• Can someone else run it? Can a team led by someone other than the founder handle opening procedures, service, restocking and end-of-day reconciliation?
• Can quality be maintained? Are there workable procedures for busy periods, staff shortages and ingredient delays?
• Are the costs sustainable? Once the proposed franchise charges and normal management costs are included, does the store still have sufficient financial headroom?

Set thresholds in advance to suit the business, rather than relying on an unsupported, generic success rate. The observation period should also cover normal operating fluctuations, rather than drawing conclusions solely from the opening promotion period.

2. Arrange for the founder to step back from day-to-day operations

A founder’s ability to solve problems on the spot is often a blind spot when assessing whether a business model can be replicated. During the pilot, a trained store manager should run the outlet using written guidance. The founder should provide support only through agreed channels, rather than turning up whenever a problem needs fixing.

This does not mean allowing problems to go unchecked. Issues involving food safety, staff safety or other legal obligations still require immediate intervention. However, every intervention should be recorded, including what triggered it, the time taken to resolve it, who was involved and any subsequent corrective action.

Create a simple ‘exception log’ that divides problems into three categories:

• Insufficient guidance: Staff cannot find the required steps, so the operations manual needs to be expanded.
• Insufficient training: The steps are documented, but staff have not mastered them, so demonstrations and assessments need to improve.
• Weaknesses in the model: Problems recur even when staff follow the guidance, so products, equipment or staffing arrangements need to change.

For example, frequent mistakes during busy periods may not simply mean that staff are working too slowly. The workstation layout may be impractical. Identify the cause before updating the manual, rather than blaming every problem on the people carrying out the work.

3. Recalculate profit and cash flow from a franchisee’s perspective

A company-owned store’s reported profit may conceal unpaid work by the owner, delivery costs covered by head office or discounted rent from a related party. For the pilot, prepare a separate projected franchise outlet profit and loss statement that assigns realistic costs to these resources. Clearly distinguish actual expenditure from estimates.

Alongside rent, wages and purchasing costs, include wastage, payment processing charges, platform fees, repairs, insurance and the proposed royalties, marketing contributions and system fees. If the owner works in the store, include reasonable remuneration for that work too, so that earnings from labour are not mistaken for a return on investment.

Prepare a cash flow statement as well as a profit and loss statement. Fit-out, equipment, deposits, opening stock and pre-opening expenses may not all appear in the profit and loss account in the same period, but they still tie up cash. Supplier payment dates and the timing of sales receipts also affect working capital.

Use the pilot records to test less favourable scenarios, such as falling sales, higher purchasing costs or recruitment delays. State the basis for each assumption. Do not work backwards from an attractive payback period to produce the figures. Nor should results from a single location be extrapolated directly across Taiwan.

4. Check whether head office support is sustainable

The pilot tests head office as well as the store. Record the staff time and cost involved in every training session, remote enquiry, on-site coaching visit and instance of supply coordination. If one outlet already needs the founder’s attention around the clock, recruiting more franchisees will only magnify the problem.

Divide support into three stages: pre-opening, the initial trading period and routine operations. Assign responsibility, contact channels and response arrangements for each. Then estimate the staffing needed to support several stores at once, rather than assuming the existing team can absorb unlimited extra work.

The operations manual should also be assessed through actual use by pilot staff. Do not simply ask whether it is easy to understand. Observe whether a new starter can complete specified tasks using the documentation and knows whom to ask for help when an exception arises. Any procedure that still depends on repeated verbal explanations has not yet been fully standardised.

5. Make the pilot findings a checkpoint before recruitment

Taiwan has no single dedicated franchise statute, but that does not mean franchising is unregulated. The Fair Trade Act and the Taiwan Fair Trade Commission’s Disposal Directions (Guidelines) on the Business Practices of Franchisors address matters including the disclosure of important franchise information, recruitment practices and fairness in transactions. Contractual rights and obligations are also governed by general legislation, including the Civil Code.

A pilot is not a statutory certification required under those guidelines, and completing one does not mean the Fair Trade Commission has endorsed the business’s profitability. If pilot revenue figures or payback analyses are used in recruitment, take account of the Fair Trade Act’s provisions on false or misleading representations. Explain the reporting period, store format, basis for calculating costs and any exceptional support provided. Do not present the best month’s results as something generally achievable.

Finally, classify the assessment outcome as ‘ready to proceed’, ‘revise and retest’ or ‘put franchising on hold’. If performance is inadequate after full costs are deducted, key tasks still depend on the founder or head office cannot sustain the support required, improve the model first rather than using franchise fees to fill the gap.

Practical takeaway: Before offering franchises, prepare a pilot brief, an exception log, a projected franchise outlet profit and loss statement, and records of head office support. Evidence that someone else can run the business, that costs are fully understood and that head office can sustain its support provides a firmer foundation for building a franchise network.