Could your business become a franchise?

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28/07/2017

Franchising can be an excellent way of growing your business rapidly and earning a good return. It also means you can use other people's capital to expand. You're getting new revenue streams from franchise fees and royalty payments, and it's a great way to grow your brand - you can focus on the image of your brand in the marketplace while your franchisees concentrate on selling your products or services.

Suitability of your business

There are opportunities for businesses in emerging or growth industries, or even in fragmented markets where there aren’t any dominant players, to set up franchises. To turn your business into a franchise, it needs to:

• Have clear documentation of all the systems and processes in your business. Essentially, you want to create an operations manual that will be easy to follow.
• Have a recognisable brand image and reputation. Customers have an expectation that your brand will provide them with the same services or products every time they shop with you. .
• Be profitable. Your business should be successful and generating a sufficient gross profit margin to allow you and your franchisees to make money.
• Unique, with a clear competitive advantage. Your business should be easily differentiated from its competitors, so that it’s performing successfully in its market.
• Affordable – if the franchise is very expensive there will be very few people who could afford to buy into your network.

Look around at other similar businesses that have franchised and do some homework on them. How did they go about it, and can you follow their lead?

Develop a franchise plan

Your plan should outline why your business is appropriate for franchising and how your franchise system is going to work. The plan should contain:

• A SWOT analysis of your new business model.
• The management structure of your franchise – plus training and support systems.
• Accounting statements such as financial forecasts, marketing strategies, budgets and intended growth over the coming years. You’ll also need to prepare audited financial statements for the franchise company, to show you can make money
• Your future supply chain, taking into account expected growth
• Fees, royalties, transition timelines, and revenue targets for franchisees.
• The requirements of franchisees – business skills, personality traits, work ethic, and financial position.
• The monitoring process used to make sure franchisees are providing similar quality products or services.
• Legal requirements. You’ll be required to prepare a standard disclosure document for your franchise operation. If you claim that a franchise can make over £100,000 per year, that needs to be true.

How it will work – the details

When you’re developing your franchise plan, it should be with certain goals and objectives in mind. The main components to focus on are:

• How much your franchise fee and royalties will be.
• Terms of agreement, such as the duration of the franchisee
• The location terms of each franchisee, and the area you’ll offer franchises in.
• If franchisees will be purchasing their equipment and supplies from your business, or if there are certain suppliers they have to use.
• Whether you want an owner-operator for each unit or area/master franchisees who will develop multiple units.
• How you’ll handle the situation if you wind up with unsatisfactory franchisees who are damaging your business’s reputation.

Attracting and training franchisees

Your business may be so popular that you don’t need to attract franchisees – but you will need to find the best prospects. You’ll have to weigh up how much business experience potential franchisees should have and whether you’ll work with people who have an entrepreneurial mindset.

It’s essential that franchisees have the training and necessary support systems to do the job right:

• Establish a training program and operations manual that will give new franchisees a comprehensive guide to the initial set-up of their franchise, along with day-to-day management requirements. Training is vital for helping to get new franchisees up and running. If they can quickly learn your business’s methods for success, they may have less need for your support structures further down the track.
• Establish support systems for any issues that franchisees and their employees may have. Decide whether to rely on in-house staff to support franchisees, or set up an external group responsible for support, ensuring quality and brand standards are upheld, and contractual obligations are met.
• With your support systems in place, regularly review your franchisees performance and targets. By being easily accessible via email or phone, and visiting your franchisees frequently, you’ll help build up a rapport that shows you want to maintain high standards.

Summary

Franchising isn’t the solution for all business owners, but it can be a way of growing your business into a more efficient outfit. When you decide to become a franchisor you’re effectively balancing your time between your core business and the franchise. You’ll be able to create a faster-growing business by embracing growth and the technology that comes with it.

Advice and resources

• British Franchise Association is a good resource, with a Franchise Consultants Directory to help you learn more. They also have a section on franchising seminars that are worth attending.