Why franchise your business?

by Nick Williams, Ashtons

Let’s make an assumption! You are a lively business person with a great idea that’s popular with your customers, and which you have proven to be profitable and successful by operating it for a period of time.

It is true isn’t it that the cost of expansion in terms of time and resources as well as the financial risks are usually enough to put an MD or owner off – buying or leasing premises, stock, hiring / training new staff, managing and monitoring – all these cost money which has to be raised by capital that you may need to gain by finding an investor, or borrowing. Many people dislike having an investor of their business for obvious reasons.

What are your options to grow the business?

You could employ more people – how do you feel about that? Can you rely on them? Are they going to leave you at moments of pressure or be unavailable so that you have the worry of running your arm’s length operation?

To open new locations or units or put another vehicle on the road costs money. How much do you have to invest? If your funds are limited will you miss an opportunity that others may take by seeing your business and copying it?

Perhaps what you do is very clever and different and appealing to the marketplace. You want to capitalise on that and have ‘first mover advantage’ but if you don’t have the resources the chances are somebody else may steal your lunch!

The benefits of franchising your business

Franchising, when done well can help you to make the most of the business idea that you have, to expand and to grow and to enjoy the experience with some really interesting people (some of them can be challenging though!) and over time generate increased income and ultimately a profitable exit.

The immediate attraction of franchising is that once you have made the initial outlay in involving expertise to help you get it right first time in setting up the franchise system, all the costs in establishing new outlets / areas are borne by your franchisees, who not only pay for the right to trade and use their capital to set up and develop the business but also contribute to ongoing costs associated with developing the franchise business through the marketing aspect.

Considerations

Of course, net margins may be lower because there has to be an income that will be attractive to your franchisee and so you will take a smaller slice but it will be from what we expect to be a larger cake.

The long-term effect is an expanded business at minimal cost, with the trading risk moving from the franchisor to the franchisee and long-term stability provided and protected by the franchise agreement.

The benefits of group purchasing including volume discounts will enable the franchisee to offer competitive prices increasing market share and the franchise return on investment will be enhanced as profits will be generated on a much smaller capital investment.

Potential franchisors are concerned regarding loss of control of the business or reputational risk but experience shows that the franchisee who has invested money will usually take better care of the business than an employee whose main interest is the pay cheque – the franchisor benefiting from the franchisees ambition, energy and commitment to the business and its standards.

Provided that care is taken when setting up the franchise, and that there is a robust ongoing monitoring and support system the likelihood of brand reputational damage through franchisees is actually quite small.

Expansion is achieved with a smaller and more cost efficient team as the hiring, training, motivating and retaining of competent staff are all functions handled by the franchisee rather than the franchisor. Quality control established by the franchise system, careful training of the franchisees and ensuring adherence to the system by good quality ongoing relationship with the franchisees is supported by an effective franchise agreement, which must be drawn up by an experienced franchise lawyer (would you trust the buying or selling of your business to a divorce lawyer? Of course not. You need a specialist for this situation).

Nick Williams is an experienced national and international franchise development consultant who has worked in the UK franchise industry for over 15 years.

If you want to find out more about franchising your business, click here to contact Ashtons

by Euan Fraser, AMO Consulting

There are many reasons why an increasing number of businesses are turning to franchising, here are just a few:

When you franchise a business, you bring in the financial backing, dedication and manpower of a local franchisee to drive your business forward in their territory. This allows your network to grow much more quickly and cheaper than ‘organic’ growth.

The franchisor has few costs because the franchisee pays for all the equipment and set-up costs as part of their franchise fee.

No industry is recession proof. However, businesses that use franchising have been proven less likely to fail in a recession than others.

One reason for this level of security is that franchisors tend not to be exposed to the high levels of debt and overheads that are involved in non-franchised businesses.

However, the main reason for me to franchise a business is that each business in the network is run by a dedicated franchisee who will work tirelessly to protect his or her business.

In a franchise the day-to-day administrative burden is shouldered by franchisees. This allows the franchisor to focus on developing and expanding their franchise community.

For example, one particular area of administration is staffing. With franchising, staff are employed by the franchisee therefore any problems are the franchisee’s to sort!

Naturally, the franchisor has to be on hand to provide support to franchisees when required, however this is a lot less hassle than trying to do everything yourself.

If you want to find out more about franchising your business, click here to contact AMO Consulting

By Suzie McCafferty, Platinum Wave

For an established and profitable company, business format franchising can be an extremely effective route to expansion. What it won't do, is help a business in difficulty claw itself back into profitability with someone else's money.

It is a commonly held belief amongst successful franchisors, that a franchisee is more committed to achieving business success than a salaried manager on account of their vested interest in making the business a success.

There are several reasons for this point of view. A franchisee will have chosen to apply for your franchise out of literally hundreds available and is effectively making a 5 year minimum commitment to you.

The selection process for recruitment should be many times more rigorous than that of a manager, so the calibre of a franchisee should be extremely high. They have invested in your model with a mixture of their own money and bank funding and will only profit if they make a success of the business.

With all of this and more at stake, providing your recruitment and selection strategies are robust, franchising should offer your brand the best chance to succeed in any ‘qualified’ territory.

If you want to find out more about franchising your business, click here to contact Platinum Wave

Can my business be franchised?

By Suzie McCafferty, Platinum Wave

The simple and honest answer here is to seek advice from a British Franchise Association approved Franchise Consultant. A good one will carry out a thorough franchise feasibility study and be honest with you about the findings.

Your lawyer, accountant and banks are also a great source of advice at this stage. Be sure to speak to a bank with a dedicated franchise unit - HSBC, Lloyds Group and RBS/NatWest are all endorsed by the British Franchise Association - as are the best franchise consultants.

How to go forward

You need to assess what has made your existing business successful and how that success can be achieved in different geographical areas, not to mention in someone else's hands.

If your business relies on skills that are entirely unique to you, then how would someone else be able to replicate what you have done without those abilities? If your business provides a product or service that is particular to the location you operate in, then you need to establish if there is a genuine market for it elsewhere. Some very successful franchise brands have failed in new markets because the product just didn't fit.

Things to consider

Ensure your business will stand the test of time. If your business is deemed to be a ‘fad’ then how can you offer your franchisees the comfort that they have the ability to develop their business for at least the first 5 year term of their franchise agreement with you?

The best advice I can give you is to use all the franchise sources of information and expertise available to you and don't try and cut corners. Franchising is all about building a successful network in the long term - that's where the real value is. Invest in building the right foundations to create a robust franchise brand that will attract and retain the best people.

To summarise, not all businesses are suitable for franchising but most business concepts can be.

A "franchiseable" business would need to be:

• Credible – your concept needs to be proven with a good track record and an experienced management team. It needs to have a good local press and public acclaim.
• Profitable – franchising is not a means of rescuing a business that is under-performing, a business needs to be already successful and generating a sufficient gross profit margin to allow you and your franchisees to make money.
• Unique – your business needs to have a unique selling point that will allow it to be differentiated from competitors. This sustainable competitive advantage would allow it to compete successfully in its' market nationally, with possible potential to expand internationally.
• Transferable – you need to have a business where the systems, procedures, expertise, skills and know-how can be transferred to others.
• Teachable – you need to make sure all the systems are in place and the operating systems of the concept documented in manual form. You should also be able to train others in three months or less in the use of your systems and procedures.
• Supporting – you need to have or be able to acquire the ability to provide ongoing support to your franchisees.
• Affordable – if the franchise is very expensive there will be very few people who could afford to buy into your network.

If you want to find out more about franchising your business, click here to contact Platinum Wave

Turning a franchise idea into a business opportunity

by Bill Hendrie, The Franchising Centre

The first point to be made here is that no matter how fantastic you think that your idea is, you cannot simply turn an idea into a franchise. You can however, turn an idea into a business and subsequently develop that business into a franchise.

Franchising or business format franchising to give it its full title is the business relationship where one party (the franchisor) grants the rights to another party(s) (the franchisee(s)) to replicate their proven business system and trade under their name. In return the franchisee will pay the franchisor both initial and on-going fees.

It is true to say that most businesses could be franchised but not every business should be franchised.

When deciding whether or not a business could potentially be successfully developed as a franchise, we look at five key areas initially:

1. Proven successful format

The franchisor is going to grant the rights to potential franchisees to replicate the original business. The franchisee will therefore want to see a business that has been around for a while (at least a minimum of a year and preferably more) and has proven to be successful both in terms of turnover and more importantly net profitability.

If this is not the case, then why would anyone want to replicate it? As the first year of trading in many businesses is not particularly profitable and indeed often loss making due to set up costs, then it is often advisable to wait for a longer period until the business matures and shows growth, before embarking on franchising. Ideally the franchisor should also look to operate a ‘pilot’ operation.

That would be an identical business, from a second location either owned by the franchisor or ideally purchased (usually at a reduced price) by a third party. The aim of a pilot is to prove that the success of the business is based on the product/service being supplied and the demand for that product/service and is not simply based on the sales ability/personality of the owner.

2. Easily duplicated in multiple locations

The ‘business format franchising’ model is based on the assumption that the franchisor will receive a relatively small percentage of the total turnover or profit of each franchisee’s business.

In order for this model to work therefore, there needs to be a sufficient number of franchisees to contribute to the franchisor’s income, allowing the parent business to financially support the network and produce an acceptable profit.

Consideration must be taken as to the ‘universal’ appeal of your product/service therefore, as your income as a franchisor will depend on having multiple locations throughout the UK, or indeed the world. Whilst a ‘haggis’ franchise for example might do well in Scotland it may have limited appeal south of the border. Longevity is also a consideration to be taken into account. There are numerous examples of ‘fads’ that have swept the country that ‘burned brightly’ but burnt out quickly. Who remembers the trend for having your feet treated in a fish spa? As your franchise agreement is likely to be for five years and often for longer, you want to avoid concepts that are this years ‘big thing’.

3. Relatively easy to master

Naturally enough, in any business start-up, the owner will want to produce turnover and profit as soon as possible. This would equally apply to franchisees. The franchisor however would always want to be confident that the incoming franchisees have received sufficient training to run the business, in the way that the franchisor would want.

The length of time taken to train incoming franchisees is therefore crucial. The procedures and processes in almost all successful franchise models are fairly easy to learn. It is indeed one of the main benefits to the franchisee that they will be ‘taught’ how to run their business relatively quickly and therefore will be able to start trading and earning, within a short timescale.

Easy however, should not be taken to mean that it is so simple that anyone can do it. The franchisor will always look to choose franchisees with the appropriate skill set. Many franchised businesses look for franchisees with business development and marketing skills (which are crucial in any business) to be the business owner. In turn the franchisee will recruit staff with the relevant ‘hands on’ skills to do the job. One example would be hairdressing where many salons are owned by ‘business owners’ as opposed to qualified hairdressers.

4. Generates enough profit to satisfy two parties - the franchisee and the franchisor

Unlike a ‘stand-alone’ business a franchised business has to be profitable enough that both parties (franchisor/franchisee) can receive an income.

The franchisee, who will always receive most of the profit, must feel that, even after paying the franchisor the monthly management fee (and marketing royalty if there is one) that there is enough profit left in the business to make it an attractive proposition. The franchisor on the other hand, needs to ensure that the management service fees are producing enough income to finance the support structure that all good franchisees put in place, as well as producing profit.

From a franchisor’s perspective management fees, certainly in the early days, are unlikely to cover the increased costs incurred in the franchising process. However, as the network grows, it should be the case that on-going fees cover both running costs for the franchise operation and generate profits.

5. Has strong ‘reasons to belong’

Taking into account the principal that all good franchises should be relatively easy to master within a reasonably short time scale, one could ask the question “Why don’t individuals simply start their own business rather than be part of a franchise?” Should I be ‘Bill’s Burgers’ as opposed to McDonalds for example?

There are a number of key reasons why being part of a franchise is a safer option:

• The system has already been proven - All good franchise systems have been developed, tweaked, and improved before the first franchisee starts to operate. The franchisor has borne the cost of development and in many cases learnt from costly mistakes. By following this already proven system franchisees avoid both the development costs and replicating the mistakes made by their franchisor.
• The knowledge of the franchisor - Most business knowledge is gained through experience. As a franchisee you have the opportunity to tap into the experience of your franchisor. Particular attention should therefore be paid to the length of experience that your franchisor has in running the core business. No matter how successful the franchisor’s business is, if it has only been operational for a few months then as the franchisee you are not necessarily ‘buying into’ a wealth of experience.
• The brand name - A powerful sales tool which should stand for consistency of product or service. ‘Bills’ Burgers’ may be the best or indeed worst burger in the world, the brand tells us nothing. However, with McDonalds you know exactly what you are getting. New franchisors normally do not have the benefit of a reputation out with their immediate vicinity. Potential franchisees therefore have to decide whether both the ‘brand’ name and any associated logo will be a beneficial (and transferrable) business tool.
• The launch package - Reputable franchisors almost always supply a comprehensive launch package. This can range from a ‘turnkey package’ where everything is supplied and you simply have to ‘turn the key’ and enter your new business, through to a van-based franchise for example, where the franchisee buys or leases the van but the franchisor brands and equips it. The launch package should not only contain the ‘tools’ to do the job but should include training, corporate stationery, and marketing materials.
• The on-going support – Franchising is often described as ‘working for yourself not by yourself’ and this statement is justified by the on-going support that the franchisor should be prepared to offer the franchisee throughout the lifetime of the agreement. This support may take the form of centralized services such as invoicing, payroll and training. It will almost certainly include corporate marketing ideas and initiatives. For most successful franchise operations, there is also an element of field support involved, which can be both practical hands-on help (such as a member of the franchisor’s team working with franchisees on a sales drive) through to more theoretical discussions regarding topics such as localized marketing ideas, discussions on sales figures or even staffing issues. Again, the franchisee is relying on the franchisor’s previous experience of most situations, to help guide them.
• Bank support - One final reason to belong would be the fact that banks ‘like’ franchised businesses and more importantly, they support them. Due to the very low failure rate within franchising, it should be easier to access capital in order to purchase a franchise than it would be if you were starting a stand-alone business. This will obviously depend on your financial status.

The final point I would suggest that you consider before embarking on franchising your business is “Does the franchise model suit you as a person?”

You may have been used to managing staff however managing franchisees requires a different style. You cannot call them franchisees and treat them like employees. They, like you, are business owners in their own right and need to be respected as such. Your management style may be to ‘micro-manage’. This is difficult in franchising as no franchisee wants to feel your metaphorical eyes looking over their shoulders 24/7.

Think of your business model as your ‘baby’ and the franchisee as a childminder. Would you be happy to hand your ‘baby’ over to the childminder and let them get on with it? Or would you stress yourself out worrying that the baby wasn’t being looked after properly. This can be the litmus test as to whether or not franchising is for you.

If you want to find out more about franchising your business, click here to contact The Franchising Centre

Delivering growth through Franchising

Iain Bowler, National Head of Commercial and Partner in the Franchising team at Freeths, has created a top tips sheet to help you grow your business by creating additional revenue streams through franchising.

For many years businesses have adopted a binary approach to growth - organic or through mergers and acquisitions.

But there is also a third way. Franchising.

The franchising model allows business owners to balance the need for growth, with the need to mitigate some of the corporate risks associated with both organic growth or growth through mergers and acquisitions.  

It offers brand owners an asset-light way to grow their business, by working with carefully selected commercial partners who use their own funds to open new units, using the franchisor’s brand, trade mark and operating system, whilst also taking responsibility for finding and securing premises and employing the workforce.

Adopting this type of business model can be very beneficial especially during challenging markets, by creating additional revenue streams and delivering growth for a business and its shareholders when the more traditional routes have plateaued or become limited.

Whilst there are many advantages that can be gained from franchising, it is also important to exercise caution when considering whether or not to adopt this type of business model, and whether it is the right strategy for you.

Top tips when considering franchising

Be strategic 
Start with the end goal in mind and plan your expansion carefully, whether regional or international.  Growth through franchising should be carried out with the aim of delivering a pre-defined goal and in a way that will deliver your commercial objectives for the expansion of your system.  In the military they refer to the “6Ps” – proper planning and preparation prevents poor performance!

Be prepared to invest 
The success of franchising is about leverage, and once you start to leverage the system, growth in the system is funded by franchisee’s capital; but you have to invest at the beginning (financially and in terms of time, management resources, technology, systems, and in  supporting your franchisees with training, merchandising, back office, financial systems) to develop the system in the first place, and you need to continually innovate in the business for the benefit of the franchisees’ businesses.

Manage the risks
Understand the risks and take advice, plan meticulously, have realistic expectations.  Understand and define what good looks like.  In a franchise context that is a proven, repeatable business that is infinitely saleable and which has a lasting demand.

Avoid ‘fads’
It is important to avoid “fads” which will be here today but gone tomorrow, because longevity is key to a successful franchise system.

Take proper advice
If you are going to consider franchising for the first time, take advice from seasoned professionals who understand franchising.  Look for advisors who are affiliated to the British Franchise Association.

Invest in the right team
Get experienced franchise operators in your team.  Creating and managing a successful network of franchisees is not the same as being successful at the underlying business.  So if you are a retailer, franchising a retail business is not about being a good retailer; it is about supporting other business people, who might never have been in retail before and enabling them to be successful retailers in their own right.  Their success is your success, but their failure is your death knell.

Protect your business
Protect your brand, your intellectual property and your confidential information, these are key to the success and long term growth of your franchise, fail to protect them at your peril.

Run pilot schemes
Run a pilot operation for at least 6 and preferably 12 months to refine the system before you start offering franchises for sale.  If possible run the pilot as a “shadow franchise” – on arm’s length terms with a benevolent shadow franchisee who might go on to the be your first actual franchisee and ambassador for the brand and the system

Create the right business structure
Choose the right structure for your business and for the markets you are targeting.  There is always a trade-off between the amount of control you can exert over the network of franchisees and the relative rate or speed of growth.  If you are considering appointing master franchises you will need to select your development partners with great care

To discuss whether franchising could be the right solution to help you deliver additional revenue streams and long term growth for your business, please call a member of our National Franchise team below.

Iain Bowler
Partner, National Head of Commercial
Iain.bowler@freeths.co.uk

What are the disadvantages of franchising a business?

As well as the advantages to franchising your business, disadvantages also exist:

Costs involved

You need to be realistic about the cost of establishing a franchise network against the time it will take for you to see a return on your investment and ask yourself if you can afford it.

Loss of control

Usually when you own it, you control it, but in franchising it is the franchisee that controls his/her unit and to a degree runs it their way. It's here when the operating manual comes into play, if the franchisee sticks to your systems then it's as if you are running the franchise unit yourself.

Remember that each franchisee is a businessperson in their own right and so you do not have “hire and fire” rights over them . You do however need to monitor closely what the business is achieving and identify areas of poor performance.

You need to have regular communication to make sure that the franchisee is doing things properly and sticking to your systems and procedures to meet their targets. A potential failure can have disastrous results for the network as a whole. You need to also protect your business from franchisees who may try and replicate the concept and steal customers/clients.

Finding the right franchisees

It can be tempting in the early stages to simply recruit those with the required investment to help get your franchise up and running.

This can be fatal as the wrong franchisees can damage the foundations of your franchise and bring failure to the whole network.

You need to therefore invest time and money in recruiting methods and how to identify franchisees who are highly motivated with the potential to be successful.

Managing growth

Having a large franchise network can be a nice position to be in, but you need to make sure that you have the required support staff to serve the needs of your franchisees.

It is therefore better to be over-staffed at times so that you can react to any problems that may arise from old and new franchisees, this may involve changing the culture of your organisation to one that is support-oriented. If they don't get the necessary support they may find it difficult to achieve their aims and your business could suffer.

Conflict between franchisee and franchisor

The biggest negatives in franchising are the conflicts between the franchisee and franchisor which as a worst-case scenario, but not uncommon, can lead to legal proceedings.

When franchisees are making money they are happy, but if they are not then the blame usually lies at the door of the franchisor. Allegations, rightly or wrongly, include lack of support, inadequate training, territorial problems, misrepresentation and even fraud. Frequent communication, adequate support, thorough market research and a comprehensive operations manual can help combat this.

How to franchise your business

By Euan Fraser, AMO Consulting

It is true that almost any business can be franchised. However, not every business can be franchised successfully. The first thing you need to do is to step back and objectively identify whether franchising is suitable for you. A business ready for franchise should be credible, sustainable, teachable, unique and profitable.

When looking at how to franchise your business, you need to start at the beginning by looking objectively at your business. Are you ready to franchise? The success of a franchise opportunity is based upon its successfully meeting key criteria in five different business areas. These are:

• The business environment in which your business operates – will your operating philosophy and experience allow you to develop a successful franchise operation?
• The products or services – are these suitable for franchising?
• Branding, Sales & Marketing – is your Brand sufficiently strong and is your approach sufficiently well developed to provide a worthwhile advantage to a franchisee?
• Finance – is your financial position strong enough to support a franchise network and is there enough profit to satisfy both parties?
• Administration – is your business system proven, robust and able to be learned by a franchisee?

If you feel that your business can be franchised then there are a number of clearly defined steps to follow to get the franchise up and running. At AMO we break them down into 5 easy stages:

Stage 1 – Franchise Development Plan

You need to prepare a business plan for franchising. The development plan will look at issues such as the structure of the franchise, profile of the ideal franchisee, how to decide on the territories that will be allocated to franchisees, the impact on your staffing resources and your proposed franchisee support system.

How will the franchise opportunity work? What is your role and what should the franchisee be responsible for? Asking these questions will help you to establish the operating guidelines for your franchise.

Following this you can start looking at the kind of Franchise Package you will give to a franchisee. Just what is it that your franchise will offer them? Remember to ask yourself whether you would buy into the opportunity!

A full financial analysis will be needed, to allow you to put together financial projections for both your own business and that of the franchisee. These should look at how sales build up over time, profit margins, cost profiles and the management service fees you might charge a franchisee. You should also look at the cash flow of the business and consider the effect of “what if’s”.

If it all adds up then you need to establish an Action Plan to implement the franchise opportunity.

Stage 2 – Pilot Operation

Some sources say that the average stand-alone small business has a 75% chance of failure in its first five years of operation. Prior to franchising, any business should operate a pilot operation, at arms length from the main business, for at least a year to prove that it has a viable franchise concept.

In fact, it is highly desirable for an intending franchisor to open several outlets using their own capital in which they can test the adequacy of their franchise systems, procedures, training, etc. The lessons learned during this phase will reap dividends after the successful commencement of franchise operations.

Stage 3 – Operations Manuals

You will need to prepare a Franchise Operations Manual that sets out a detailed explanation of the business system and how it is to be operated. This is a time consuming task that should not be underestimated!

The Manual is used for the following purposes:

• As a day-to-day reference tool for use by the franchisee and his/her employees when running the business.
• As a training tool by you when training franchisees.
• As a training tool by the franchisee to train employees.
• As a basis for business development.

The Manual is the means by which the terms and conditions of the franchise agreement are reinforced to achieve uniformity and conformity across the franchise network. It contains references to, and interpretations of, the obligations of both you and the franchisee under the franchise agreement. The procedures laid down throughout the Manual should be recommended practice based on the expertise and experience of running your business.

Stage 4 – Franchisee Recruitment

This is the point at which new franchisors are most vulnerable. You have spent money and time on developing a system and need to recoup your investment! Sadly many franchisors make the mistake of signing poor franchisees and never recover.

Careful planning of the recruitment process, advertising campaign and interviewing techniques is needed to avoid making costly mistakes.

Stage 5 – Support Systems

Your initial training and support of franchisees must be first class. The input required you’re your senior management team cannot be underestimated – be prepared to invest that time.

Make sure that the business processes and systems have been streamlined and are as simple as possible. This all makes for a successful franchise.

The Franchise Agreement

As there is no specific legislation or regulation for franchising, the franchise agreement becomes all-important in determining the rights and obligations of the franchisor and the franchisee and the relationship between them.

In this respect the franchise agreement can be said to form the 'engine room' of the whole transaction. If difficulties should arise between the franchisor and the franchisee they will need to turn to the contract to see what, if any, rights and obligations have been provided in the franchise agreement.

All franchisees should be treated as a family and, as such, there should be no room for favourites. This means that the franchise agreement should be in a standard form with all prospective franchisees being offered the same terms with no special deals being done. If a franchise agreement is to be non-negotiable then it is important, from the franchisees point of view, that it is well balanced in terms of rights and obligations of the parties and takes into consideration the franchisees concerns also.

A franchise agreement should therefore achieve three fundamental objectives:

• Firstly - given the absence of specific franchise legislation, it should contractually bind the franchisor and the franchisee and accurately reflect the terms agreed upon.
• Secondly - It should seek to protect for the benefit both of the franchisor and the franchisee and the franchisors intellectual property.
• Thirdly - It should clearly set out the rules to be observed by the parties.

What should a franchise agreement clearly state?

• Specify in detail the duties and obligations both of the franchisor and of the franchisee
• State the grounds upon which the franchisor will seek to terminate the franchise agreement
• Deal with the payment of franchise fees and the timing of those payments
• Set out the consequences of such termination

Franchisors should be aware that under English law if an ambiguity arises in a franchise agreement the Courts will tend to interpret the ambiguity in favour of the franchisee. They reason that, as the draftsman of the contract, it is the franchisors responsibility to make sure that he/she gets it right and therefore they will not allow them to benefit from any ambiguity which may well arise as a result of unclear drafting. 

Some thought has to be given to the franchisees and their objectives and provision should therefore be made in the franchise agreement to deal with what is to happen should the franchisee die or become permanently incapacitated .

Selling a franchise

It is also advisable to deal with the question of what is to happen if a franchisee wishes to sell their business during the term of their franchise agreement. 

Here, as in other matters, a balance has to be struck between the need of the franchisee to realise their investment as and when they want to and the requirement of the franchisor to approve those coming into the franchise network and to prevent those leaving the network (for whatever reason) from continuing to use the franchisors trade secrets and competing unfairly.

The franchise transaction is complex and the franchise agreement must respect that complexity. Experience has shown that those franchisors who take the matter of the franchise contract lightly pay dearly for their mistake.

To the franchisee, the franchise contract represents an investment. Their business depends upon it to the extent that his business may disappear should it terminate. For the franchisor, the franchise agreement is an income producing asset which will ultimately have a place on their balance sheet.

What is included in the franchise agreement?

A promise to: 

• To train the franchisee and staff
• To supply goods and / or services
• To be responsible for advertising, marketing and promotions
• To assist the franchisee to locate and acquire property and have it fitted out and converted into a franchised outlet. (Similar considerations apply with regard to the acquisition of vehicles, fitting them out, equipping the franchisee etc.)
• To assist the franchisee to set up in business
• To improve, enhance and develop the business system
• To provide certain management and possibly accounting services

Franchisors will be anxious to ensure that the franchise agreement clearly sets out the obligations of the franchisee.

A franchisor will wish to:

• Monitor the performance of the franchisee
• Protect them from unfair competition
• Protect his intellectual property
• Impose obligations and restrictions on the franchisee with regard to the exercise of the rights granted by him to the franchisee

Other considerations

The franchisor's Intellectual Property. These are in the nature of:

• Trade Name
• Goodwill
• Methods of Production
• Confidential Information and know-how
• Copyright

Unless the franchise agreement contains sufficient safeguards to protect the franchisors intellectual property rights, the franchisor may find that they are unable to prevent infringement of their rights by a third party or an ex-franchisee.

• Franchisors should be aware that it is not only the interests of the franchisor that these rights be protected
• Franchisees are equally concerned to ensure that the franchisor had done everything that is reasonably possible for him to protect the intellectual property rights in question
• Many franchisees purchase a particular franchise because of the high profile a franchise enjoys in the market place. In many cases, a franchisee has the choice of which franchise to purchase in the same market sector and one of the reasons why a franchisee will have chosen a particular franchise is because of its strong brand image
• It follows therefore that the franchisee will be anxious to ensure that in the event of infringement, the franchisor has taken sufficient steps to safeguard his ownership in his intellectual property rights so that he can stop infringement and thereby protect the reputation of that brand name both for himself and for his franchise network
• If the contract is weak on this point, franchisees will not consider that particular franchise to be a sound investment proposition because the franchisor will be limited in what he can do to prevent a 'copy cat' operation from being set up in direct unfair competition with a franchisee
• Brand names and trademarks are becoming increasingly important to business; they can increase the asset value of a company and therefore need to be adequately protected. The franchise agreement should therefore not only grant relevant rights to the franchisee and reserve rights for the franchisor, but should also contain mechanisms necessary for protecting the franchisors intellectual rights from infringement

Cost of franchising a business

By  Lloyds Bank

There is no set cost for franchising a business as each business is different and setting up the franchising system will be bespoke to your own individual requirements. Some businesses are more complex and require more outsourced professional advice and guidance whilst others are simply structured and with the right support much of the work can be taken on by the owner reducing the potential development costs.

As a guide I would expect the franchise development costs, which include:

• a feasibility study
• writing an operations manual
• developing a training program for franchisees
• adopting appropriate support systems
• preparing a legal agreement and other documents
• brand protection costs (trademark registration if required)
• identifying target franchisees
• developing a recruitment process
• exploring appropriate recruitment channels
• developing a franchise prospectus
• financial modelling
• preparing a business development document

All of the above will come between £15,000 and £30,000 depending on multiple factors. Additionally, you would need to budget for franchisee recruitment costs such as advertising, exhibitions etc. of at least £1,500 per month.

Additional costs

Your existing business may incur additional costs in setting up a support structure which may include recruiting additional staff and developing a website for the franchising side of the business.

These development costs need to be made before recruiting your first franchisee so there is a significant capital outlay before you can begin franchising. Banks are on hand to assist with these development costs.

Help and Support

It is strongly recommended that you use the services of British Franchise Association affiliated advisors for the development of your franchise model and legal documentation. 

Franchising a business is a minefield and shouldn’t be undertaken without the right professional guidance. Costs will be individual to your own circumstances although a good consultant will be able to offer some guidance according to your own needs.

The more development work you do yourself the lower the consultancy costs will be however that assumes you have the expertise and the time to develop the necessary systems. Sometimes in the long run it’s better and much quicker to outsource all of the work to professionals.

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Why use a franchise consultant?

By Suzie McCafferty, Platinum Wave

Franchising is not something that can be learnt overnight and so when deciding to franchise your business, you will require the services of a franchise consultant. This consultant should be a member of the British Franchise Association (bfa), and hence have a proven and successful track record in franchising.

The franchise consultant will use their experience to help you build a sustainable franchise model and will navigate you through each step of the franchising journey.

Whether you are a small to medium sized business or a corporate organisation, franchising is continually proving to be a robust and effective growth strategy, even in these challenging economic conditions.

Franchising your business can bring many business benefits including:

• the ability to achieve national or even international brand awareness;
• the ability to take advantage of market opportunities more quickly and with a lower working capital requirement than if you were to develop corporately owned outlets;
• the ability to generate additional revenue streams for your existing business.

...to name a few.

However as anyone who has franchised their business successfully will tell you, it’s not just a case of “great, let’s franchise our business”, then off you go!

What does it take to develop a franchise business?

Developing a successful franchise proposition requires you to satisfy a number of key criteria such as: have you proven and piloted your concept already, do the figures stack up, does your business proposition have longevity and so on.

Franchising your business also requires you to transform and document your business into a series of organised systems and procedures that can be replicated by others, as well as the implementation of a strong training and support infrastructure that will ensure your franchisees follow your systems and maintain brand standards to the letter from day one.

No business can afford to miss out any of the important steps of developing their franchise model so it’s “right first time”. Short cuts now can often lead to expense in the long term!

It is therefore hugely important that you receive sound advice and guidance from an experienced franchise consultant from the outset, to firstly establish if franchising your business is the right decision for you, and if so, how best to structure and develop your franchise proposition, in order to avoid any costly mistakes further down the line.

How can a franchise consultant help me?

There are many aspects of the franchising journey that a franchise consultant can help you with depending on whether you are franchising for the first time, or if you are expanding an established franchise network.

Whichever applies to you, it is so important that you choose your franchise consultant carefully, selecting someone who you feel you can build a good relationship with and who has a thorough understanding of your business, culture and strategic objectives.

There are a number of franchise consultants to choose from, each of whom vary in terms of skills, experience and fees. Therefore to assist you in the selection process, here are a number of key factors to help you choose the right franchise consultant for your business:

• Franchising Specialist - Your franchise consultant should always have specialist knowledge and a proven track record within the franchising industry, preferably with prior experience of running their own franchise business
• Proven Track Record - Your franchise consultant should be able to look at your business objectively and provide sound business advice based on previous experience within the franchising industry
• Sector Experience - Ideally, your franchise consultant should have previous experience of your business sector ie retail, professional services market
• British Franchise Association (BFA) Accredited - Your franchise consultant should be BFA Approved to give you the assurance that they will assist you in implementing sound and ethical franchising procedures and business practises, in accordance with the stringent membership standards set by the BFA
• References - Ask your franchise consultant who their existing clients are, ask to speak to some existing clients for a reference
• Time Saving - Your franchise consultant should be able to save you time, by assisting you in the preparation and development of key franchise infrastructure and documentation
• The Franchising Journey - Your franchise consultant should be able to provide expertise from the initial step of helping you to assess the suitability of your business for Franchising (Franchise Feasibility Study), to helping you to structure your franchise proposition, franchise package, training and support infrastructure, territory mapping, franchisee recruitment and launch of your pilot operation (Franchise Development Plan)
• Ongoing Network support – You may also wish your franchise consultant to continue supporting you in developing and growing your franchise network, providing you with best practise franchisee performance initiatives, network growth strategies and assisting with the hands on recruitment of your franchisees. Do they have this expertise?
• International Franchising Experience - For some, international expansion may also be an important part of your growth strategy, therefore you should only appoint a franchise consultant who has specialist international franchise expertise speficially in terms of entering new markets and international Master Franchising and Licensing
• Sharing of Contacts - Your franchise consultant should have access to a wide range of intermediaries who can support you as you develop your franchise network, for example franchise solicitors, franchise banks, PR & marketing agencies, franchise recruitment websites and magazines etc
• Commitment to Project - It is important to establish the level of commitment your franchise consultant is able to provide. Will they work with you for a set number of hours/days a month or will they work for you on a part time or full time basis?
• Setting Objectives - Always set objectives at the start of each project so each party knows what is expected of each other. Will your franchise consultant also assist you with elements such as the ongoing basis to recruit your franchisees for example?

Typically franchise consultants will work with you in a number of ways:

• Monthly Retainer - They can be retained on a monthly basis to deliver the above and be a regular point of contact for general franchising advice; or
• Project Fee - They can be engaged on a project by project basis to deliver the above.

Appointing the right franchise consultant for your business is an extremely important decision and is one that you should take time to research fully before entering into a formal relationship with your chosen franchise consultant.

The level of input required from a franchise consultant will vary from business to business however the above is intended to provide a useful checklist of “must have’s” to consider. One would highlight from personal experience however that your journey into franchising will undoubtedly be more successful, your franchise business model will be more robust, and you will spend less on avoiding future business challenges, if you appoint an experienced franchise consultant to navigate you through the franchising process.

If you want to find out more about franchising your business, click here to contact Platinum Wave

By Bill Hendrie, The Franchising Centre

The role of a franchise consultant will vary greatly dependent upon the maturity of the franchise that they work with and the experience of the franchise owners. Essentially they are there to provide ‘knowledge’, normally due to their own background and experience and best advice to their clients.

If we take a business that is at the stage of deciding whether franchising is the right model for expansion for example, then a consultant’s first role will be to give an honest assessment of the situation, outlining not only the pros but also the cons of the franchise structure.  There should also be a financial analysis (based on the financial figures achieved by the parent business) to determine whether the potential income from franchising is attractive to both parties.

If the decision is to proceed, then the consultant will, in all likelihood, become involved in developing marketing materials (both web and hard copy), advising on territory size and mapping, developing the documentation for the franchisee recruitment process, assisting in franchisee interviewing and assessment, franchisee business planning, engineering the operations manual, liaising with an appointed lawyer regarding the franchise agreement and devising the on-going training and support programmes for franchisees.

Should the franchise model be ‘mature’ then the consultant may be requested to give the operation a ‘health check’ and report back on any improvements/alterations they would suggest for the structure. Alternatively the mature franchisor may need advice or support in a specific aspect of the business, such as lead generation or franchisee motivation.

A good franchise consultant should, through their own experience, be able to assist at any stage of a franchised business from inception through to exit.

Bill Hendrie is an active member of the British Franchise Association, having held both regional and main board positions. He is also a former chairperson of the Franchise Group for Scotland. If you want to find out more about franchising your business, click here to contact The Franchising Centre

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What professional advice should I seek?

Franchise consultant

Using a good franchise consultant will bring an extra perspective to your business as well as a solid understanding of franchising. They will initially help you to identify if franchising is right for you and if so how will advise you on developing your system as a franchise.Generally the services offered by franchise consultants are:

• Help with feasibility studies
• Franchisor operating manuals
• Help with business plans
• Advice on funding

When finding a consultant look at a few, preferable those who are bfa members, and from asking about their existing and previous clients, including those they recommended didn't take the franchise route, you will get a good idea of who will be best for your business.

Accountants

Your own accountant should be able to help you with your financial planning, including your business plans and guidance for franchisees on what they should be achieving from their business.

Solicitors

It is essential that you take legal advice, and should seriously consider using a lawyer that specialises in franchising. The bfa has a franchise lawyers that are affiliate members click here to contact them

The lawyer will help you prepare a comprehensive agreement and you may need advice on registering your trade and service marks. By using a specialist lawyer it will increase your brand value and will give you and your franchisees greater protection.

Four ways to attract the right franchisees to grow your business