Bringing your fanchise plans together

In association with Lloyds TSB

We have adapted this article from the International Franchise Association’s How to be a franchisor. Certain details of documentation, operational plans and financing will vary from one industry to another. But the following steps are universal for all franchisors.

1. Getting Organised
Collect all the knowledge you have acquired while building the success of your business so far. Put it down in a logical, sequential way. Remember you are going to train prospective franchisees in a subject area about which they may know little or nothing.

2. Pilot Operation
Franchisees will expect you to demonstrate you have run a successful pilot operation that supports your claims for the business. Investigate how you can give your business idea patent or trademark protection – not only in this country but also in areas overseas where you might expand.

3. Ongoing Pilot
It’s essential to stay on top of your changing market – and recognise what changes to introduce and when. So you should continue to run one or more company-owned outlets.

4. Operating Plan
You will need an operating plan that covers in detail all the programmes required for running a franchise system; sales, servicing, training, site selection, pre, and post-training. This should also name the person responsible for each area.

5. Financial Plan
Develop a conservative financial plan that covers cash flow, profit and loss, and any extra sources of funding you can introduce or make available. Prepare a similar plan to help franchisees.

6. Franchisee Qualifications
Decide if your franchisees should be individuals or companies. Define the profile you are looking for – such as; business experience and skills, personal education and qualifications, financial capabilities.

7. Franchise Type
Decide which type of franchise you will offer; individual unit, multiple unit, sub-franchise, affiliation/conversion franchise, or master franchise.

8. Franchise Training
Decide what training your franchisees will need, how to train them, and who will do it.

9. Growth Plan
Decide how your company is going to grow – slowly, quickly, regionally, nationally, internationally.

10. Franchise Costs
Decide how much you should charge for the initial fee, royalty fees and advertising contributions.

11. Franchise Sales
Decide how you will attract potential franchisees. Methods include your own sales team, franchise exhibitions, direct mail, the Internet, word of mouth and advertising.

12. Franchise Territory
Decide how much (if any) geographical exclusivity to grant your franchisees. The options include exclusive territories, no competing units within an agreed area – or no protection. You may also have to decide whether protection should be subject to volume quotas or performance standards, and for how long.

13. Franchise Financing
Decide the best way to finance your own growth; with a public share offering, private offering, venture capital, limited partnership, commercial banks, or from surpluses generated by your own company.

14. Tax Planning
To protect yourself, you will need to plan the following; avoiding liability for your franchisees’ taxes, the net royalty principle, capitalising sales expenses and initial franchisee fees.

15. Franchisee Control
You will need to manage your franchisees, in particular corporate franchisees and their shareholders. Other issues to consider include:

• whether a franchisee can assign their licence or pass it to their heirs


• rules about breakaway franchisees


• franchisee bankruptcy


• competing franchises


• limits on a franchisee’s size

You will also need:

1. Credit control for the money franchisees owe you.
2. To select reporting systems and audit procedures.
3. Access to franchisees’ tax returns.
4. To decide which procedures and guidelines to use for securing deposits, prompt payment discounts and late payment penalties.

16. Advertising
Decide how to advertise your franchise – national, regional, or local newspapers and magazines, direct mail, leaflet distribution, radio and television. And how franchisees should fund it – paying a fixed percentage of gross sales, or a fixed monthly fee.

17. Dispute Procedures
Decide how to resolve any disputes that arise – with litigation, arbitration or mediation – where the dispute will be resolved, and who will pay the legal fees. You should seek legal advice.

18. Employees
Expect to employ some staff directly – to carry out franchise sales, franchisee training, and central administration. Write down their job specifications, qualifications and salaries. Develop a basic organisational chart.

19. Operations Manual
You should develop and set out clearly all the methods and procedures that franchisees and their employees must follow in running the business. Aim to include as much detail as possible about your franchise system in this manual.

20. Personal Assessment
Before committing yourself to the franchise route, answer these questions honestly:

• are your goals realistic and attainable?


• if you need financial help, will you allow a lender to take a share in your business?


• do you have the patience, tenacity and self-discipline to develop a fledgling business or convert yours to franchising?


• can you develop and sustain relationships with many different personalities – your franchisees?


• are you prepared to make the sacrifices that building a business can involve – including the effects on your family and other areas of your life?


• are you ready to share some of your present independence by working with franchisees?


• can you attract, hire, train, manage and develop important staff who will respond to you personally?


• what type of personality are you?


• becoming a franchisor is time consuming and expensive – are you ready?