One way a successful business can look to grow is to develop a franchise model. Franchising is licensing someone to set up their own business under your brand, selling your products or services but with your training and continuing support.
You receive payments from the franchisee - usually an up-front fee plus a proportion of sales income. Your side of the deal is to provide on-going support and know-how.
It can be an effective way to create and grow a network of businesses under your name. But equally, it means that your business is in the hands of other people - more so than if your franchisees were your employees.
To franchise your business, you should:
Devise a business plan
Clarify what you want to achieve. The plan should cover finances and your long-term objectives for growth and future development.
Create an operations manual for your franchisee
It should contain instructions on how to run your business, according to your own business model. The manual can collate the knowledge and experience behind your business.
Prepare your finances
Alongside the cost of developing your operations manual, your budget should also cover research, recruitment, support structure, legal fees and pilot operation.
Before you commit to long-term franchising, you can test the initiative by setting up a pilot operation to help you decide whether franchising is right for you.
A pilot operation should ideally to run for at least 12 months to identify any teething difficulties. Any experience gained should feature in the operations manual.
The ongoing pilot
Changes in the marketplace will have an impact on your business and that of your franchisees. An ongoing pilot is an in-house operation that does exactly the same as the franchised business. It will enable you to:
- Gauge the effect any market changes will have on your franchise.
- Try out new ideas and monitor the results.
- Use as a live training outlet for franchisees.
To protect your business, a contract must be drawn up by a solicitor to define the relationship between you and your franchisees. It must take into account:
- The rights retained by the franchisor.
- The rights granted to the franchisee, including those in order to use the franchisor's trade mark/trade name/service mark/logo.
- The obligations of the franchisor and the franchisee.
- Termination provisions including those which allow for the surrender on termination of tangible/intangible property belonging to the franchisor.
Your choice of franchisee is critical, particularly in the early stages of a franchise. They can determine whether you succeed or fail. Decide on the skills they should have and create a profile detailing the necessary experience and qualifications.
There are a number of ways to find the right person or people for the job. If you are looking for specific skills, advertising in specialist magazines may be your best option. Otherwise you could try:
- franchise exhibitions
- national newspapers
- the internet.
You will also need to produce a brochure outlining your franchise system and what you expect from your franchisees.
Your franchisees need to know how you want them to run their businesses and a training programme will show them. The structure of this programme and who runs it are up to you.
It may cover:
- Guidance on supplying the product or service.
- Accounting systems.
- Staff training and recruitment.
Your franchisees will pay an initial fee for the right to set up in business under your brand name and in a specific location. You will need to set the amount, bearing in mind that this figure is not about making you profit.
Your return will come from ongoing fees, which should increase with franchisee performance. You will need to set these charges too, which may include:
- Management service fee or royalty.
- Contribution to your advertising budget.
- Mark-up on goods supplied by you.
- Administration fee for specific services provided.
In most cases, a franchisee will also cover the cost of establishing the outlet or operating unit at the outset.
Franchise management and support staff
Franchisees are far more likely to succeed with support and guidance. A franchise management team can fulfill this role, as well as selecting the franchisees in the first place.
The support staff role varies from business to business, but typically covers:
- Monitoring and reporting on franchisee performance.
- Carrying out credit control.
- Providing technical advice to franchisees.
Usually one member of support staff is required for every five to 10 franchisees, depending on how complex your franchise system is.
Impartial, expert advice can keep your business on track. For a list of affiliated advisers, go to the British Franchise Association website..
Specialist knowledge can bring a new perspective to your business. You should:
- Choose someone with whom you can work comfortably.
- Get the right person – and pay more, if necessary.
- Ask to see examples of their work, including cases where they advised against franchising.
Accountants and solicitors
Your accountant will cover the financial aspects of your business. They can help with business plans and offer guidance to franchisees on what they could expect to achieve from a franchised outlet. Talk to a solicitor for legal guidance around registration of your trade and service marks. This can help protect you and your franchisees.
For clear guidance on franchising, download our PDF on how to franchise your business (PDF, 344KB). If you want to take things further, our experienced advisers can help you construct a franchise package.
Being able to react to changes in the franchising sector often relies on being able to access financing. Whether you require an overdraft to make the most of an immediate opportunity or longer-term funding to support strategic growth, we have a range of finance options and products to suit your needs.
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