Planning to Franchise

Franchising is one of a number of ways that businesses can grow and flourish, yet although most people are aware of franchising, McDonalds, Prontaprint, etc. etc. there is more to it than at first appears. So more detailed research is often needed by prospective franchisors, because although franchising has a very good track record and is supported by the main high street banks, not every business model or business owner is suited to franchising.

Franchising is a kind of partnership where the franchisee buys into the franchisors know how and commercial success rather than attempt the ‘learning curve’ themselves. In return the franchisee pays a fee for the initial and ongoing support they receive from the franchisor. The franchisor franchisee relationship usually creates an interdependent situation, with the franchisor developing brand awareness and an expectation in the mind of the end user of the product or service on offer. The franchisee actively promotes the brand in their local area to generate sales. The combination of the commitment and other benefits each of the parties bring can make a well run franchise model unbeatable.

So how do potential franchisors get started? A good starting point would be to seek professional advice to identify the feasibility and potential rewards of franchising their particular business model, together with the issues and potential pitfalls to be avoided. The British Franchise Association website has a lot of information about franchising and is usually a good place to start. Much also depends on the business culture, management team and trading history of the prospective franchisor, together with a few basic commercial aspects to consider including:

• The business model should be ‘tried & tested’ with effective operating systems
• Your market place should be stable or growing
• The business model (products or service) should be able to be replicated in other geographical areas of the UK and the base operating skills and ‘know how’ should be capable of being transferred to others (franchisees) via a training and initial support programme
• The senior management team should be fully committed to franchising
• The proposed franchise business must be capable of generating good profit margins for both the franchisor and franchisee
• To achieve the consistently good levels of performance the franchisor must be able to develop and maintain a good working relationship with the franchise network so that both parties benefit from the others contribution
• Good communications are essential, and as the franchisor owns the ‘know how’ and other intellectual property connected to the franchise the onus to achieve good communications rest with the franchisor.
• Each franchise model will have specific elements that have to built into the business structure and are often referred to as their unique selling points.

A good and successful track record is a must, and 2 to 3 years accounts ideal, but the real world does not always afford entrepreneurs that luxury of time which we fully understand.

We also know from experience that cutting corners in franchising is usually at the expense of sustained long term success, and so as with many commercial situations a sensible compromise might be necessary.

A staged approach to franchise development projects often works and limits financial exposure. There are usually 3 stages to complete;

Stage One is the development of the franchise package and operating system. At the end of this stage you’ll have a clear idea of the risks and potential rewards and what’s involved in franchising your specific business model.

Stage Two deals with recruiting the first few franchisees to test the initial training and support programmes, and to monitor the franchisees actual performance against their agreed business plan.

Stage Three is roll out across the UK and perhaps overseas, after the second stage is considered successful.

The cost of creating the franchise model will vary significantly depending on the complexity of the business model to be franchised, and will usually include consultancy and legal fees to get to the point where you’re ready to begin recruiting (stage 2). When you start recruiting new franchisees you will need additional funds to cover the cost of recruitment advertising for the first few months, and that will vary depending on how ambitious you are for new recruits.

But it’s not all bad news because a properly constructed franchise package will enable you to be competitive in the recruitment marketplace, and generate a contribution to your investment costs associated with creating your franchise business model.