Although this isn’t a suitable option for every business, it’s one worth considering. While your instinct may be to keep everything within your control, properly controlled franchises can spread your name, grow your business and boost your profits.
While initially this may mean a great deal of investment and time, eventually your franchise network could be run more easily – and profitably – than a similarly sized expansion that you run yourself.
Is Your Business Suitable for Franchise?
Many businesses of all types are, but:
if the market for your product or service is likely to be short-lived or very localised that’s a no-no.
Your business must be able to remain a vital part of your franchisees’ operations, so that they’ll benefit from continuing involvement with your company – that way, they’re unlikely to set up in competition.
If your business success is dependent upon the particular skills, expertise or personality or you or your current partners/employees, consider whether this could be replicated with others. It’s also probably not suitable if there are special audit or control requirements involved.
You also need to consider how much training or set-up your franchisees will need and ask yourself if you have the time to spare – especially as it will take you away from your business.
Are your profit margins large enough to share? Consider your financial investment in this process – and that of the franchisees too. Take time to accurately estimate set-up costs and remember that each franchisee will need time to develop their business and turn a profit. Think about the initial fee you will charge and what percentages on turnover you can reasonable expect while ensuring franchisees make a profit and prices are low enough to attract customers.
You must be able to offer a distinctive, proven business model that can deliver its products or services to an identified and profitable market; a business and brand that’s suitable for your potential franchisees and their circumstances and location.
The best way to ensure you have a proven, franchise-suitable business model is to run a pilot scheme for at least 12 months. This ensures you have the accurate information you’ll need to decide if franchising is viable, and to aid you in forming a business plan for the franchising process and producing material for potential franchisees.
Your Responsibilities as a Franchisor
One of your key responsibilities is of course to support your franchisees – we will look at that in more depth in a moment. But there is much more to begin a franchisor; it’s not an easy ride where you grow your company effortlessly and just sit back while others make your profit for you. As a franchisor, you must:
Recruit Franchisees – by advertising in magazines, newspapers and trade publications or on franchising websites. Alternatively, you could attend exhibitions, such as those run by the British Franchise Association, or work through business brokers of franchise recruitment consultants.
Produce a Franchisee Prospectus – that contains all the facts and figures a potential franchisee will need to decide if your business is right for them. Don’t undersell or oversell.
Protect your brand – ensuring it maintains a good reputation and defending it against attempts to unlawfully copy your model and potential trouble from unhappy ex-franchisees. You may need specialist advice to trademark services or products. The British Franchise Association maintains a list of franchise lawyerswith the necessary experience.
Develop Services and Products – life moves on and so do customers and clients. What’s successful and/or unique now may be dated and irrelevant in a few years’ time, so you need to be constantly looking ahead for new ideas and opportunities.
Company Promotion – the promotion of the brand and business as a whole, on a national or even international level, is down to you.
Quality Control and Discipline – just one bad customer experience with one franchisee can give your company a bad name, particularly if that customer decides to share their experience widely on social media. You will need a system for regularly monitoring your franchisees and gathering customer feedback independently.
Finances and Administration of the company as a whole.
Franchisee Support – this is vital. Let’s look at what it involves…
Supporting Your Franchisees
The type and complexity of support your franchisees need will vary hugely depending on the nature of your business and how you intend to structure your franchise network, affecting how much management and financial control you retain. However, it’s advisable to always provide:
A well-planned, carefully documented training programme
Ongoing training and refresher sessions
A comprehensive operations manual that includes franchisee responsibilities, methods, and expected performance and quality standards.
A comprehensive franchise agreement that details the rights and obligation of both you as the franchisor and your franchisees. It must balance fair and reasonable treatment for franchisees with your responsibility to act in the best interests of the company as a whole.
Ensuring the legal details are watertight and that franchisees are suitable is paramount. If this seems daunting, the British Franchise Association has a useful list of UK consultants to advise you, and also a list of UK lawyers familiar with the complexity of franchise agreements.
Providing you assess your business honestly for its franchise potential, take professional advice at every stage and don’t cut corners, you could be on your way to becoming a very successful franchise network owner.
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We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!