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.
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.
by Euan Fraser, AMO Consulting
There are many reasons why an increasing number of businesses are turning to franchising, here are just a few:Network Growth
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.Recession Proof
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.Less Hassle
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.
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.
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.
by Nick Williams, Ashtons
There is real opportunity when you grow a business through franchising – you can scale more rapidly, you can develop without endless amounts of capital being put in by you or co-directors, and of course you can have committed local presence all across the country in a way that is impossible with recruited managers and staff whose long term commitment to the business is never as strong as that of an owner.
But how do you know if you business can be franchised? At Ashtons we look at following factors:
Do you have a distinctive product or service, or perhaps a unique marketing strategy, or a clever way of reducing invest cost?
Are you good at what you do? If so, then others will be interested.
Your company must be credible in the eyes of prospective franchisees if they are going to spend their money on a franchise.
Credibility can be demonstrated in a number of different ways – most important of them being that the brand has success, and a good management team behind it in which the potential franchisee can believe.
3. Market trends and conditions
Are you in a long term market place which is stable or growing?
4. Successful pilot operations
Is your business actively trading and making money? It’s not possible to successfully franchise an idea – you could spend money trying to but it would not be a good investment decision!
5. Transferability of knowledge
Can you teach people within a reasonable period of time to operate and replicate your business model?
If it’s brain surgery and is going to take 6 years, then the franchisee is very unlikely to come on board as they would need enormous capital behind them to keep body and soul together while learning how to operate the business.
McDonalds, for example, requires a long commitment to training and while it is completely justified with that business operation many new franchisors cannot require the same commitment. In short can you provide people with the necessary tools to do the job within, say, a four-week period?
6. Documented systems
Does your business have methods and processes that are documented and can be used by third parties?
Ideally all policies, procedures, systems, forms and business practices can be put together into the Franchise Operations Manual which becomes the blueprint and bedrock of the business that you are offering to the franchisee. It is quite ok if you don’t yet have all of those things as long as we can develop them for you.
7. Affordability and return on investment
A franchised business must be affordable to its prospective franchisees and profitable, both for the franchisor and for the franchisee.
In addition to this, the franchise must provide enough profit after payment of fees to the franchisor for the franchisees to earn an adequate return on their investment of time and money.
This profitability is relative and must be measured against the investment to provide a meaningful figure, with franchisees achieving a significant return on investment by the third year of trading.
Successful franchisors are committed to building long term relationships with their franchisees that are mutually rewarding. There is a strong link between the strength of these relationships and the profitability of the franchise.
Strong franchisee relationships enable the franchisor to sell their franchises more effectively, introduce necessary changes into the system more easily and motivate franchisees to provide a consistent level of service to their customers.
9. Strength of management
The most common contributors to the failure of start-up franchisors are understaffing and a lack of experience at the management level.
New franchisors often try to do everything themselves, taking on roles in which they have little or no experience.
Consider how you will cope with the resource demands the Franchise will bring, such as franchise marketing, lead handling, franchise sales, training and multi-operations management, and build a strong team to support you.
Franchising is a relatively low-cost means of expanding a business but it is certainly not a “no cost” option. A franchisor needs capital and resources to implement a Franchise Development Programme and to recruit franchisees.
There should also be adequate finance available to support the growing Franchise network, especially in the early years.
If having considered the 10 Franchising Essentials, you think that you can, which support, tick most of them then make the next step and get in touch. We are to help you – that way we can both do good business and develop a long term relationship.
Nick Williams is an experienced national and international franchise development consultant who has worked in the UK franchise industry for over 15 years.
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.
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
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.
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.
Partner, National Head of Commercial
What are the disadvantages of franchising a business?
As well as the advantages to franchising your business, disadvantages also exist:
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.
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.
By Suzie McCafferty, Platinum Wave
The single most important fact to understand when considering creating a franchise business model is this: you cannot franchise an idea. Yes, a great idea can be turned into a great business and yes, a great business can sometimes be franchised, however a franchisee will not invest in an idea!
What will attract a good franchisee is a business model that:
- has been proven
- is profitable
- will stand the test of time (i.e. is not just a fad or a short lived trend)
- has a registered trademark
- is organised into systemised and documented procedures
- has an attractive brand
- is protected by a solid franchise agreement and operations manual
- has a comprehensive initial training
- programme that not only shares the knowledge and systems required to operate the franchise but also how to run a successful business
- has good operational and IT systems
- has a comprehensive business start-up package
- has centralised marketing templates
- has on-going operational and business training and support
Having completed a franchise feasibility study and franchise development business plan to assess the suitability of your business for franchising, and having secured the appropriate level of funding required to roll out your franchise brand and network, you can then commence your journey into franchising.
Register your trademark
Step one is to firstly register your trademark. It must be easily identifiable and something which clients and suppliers will recognise within the marketplace and that will also stand the test of time.
The creation of a franchisee operations manual is vital to clearly outline and communicate company policy, procedures, brand standards and expectations under which each franchisee must operate to the letter in order to maintain brand standards as your network grows. A reputable and British Franchise Association approved franchise consultant will be able to help your company to create an easy to follow and thorough operating manual.
Get a bfa accredited franchise lawyer
You will also require a franchise agreement in order to clearly define the contractual relationship between yourself and your franchisees, and for that, you will require a specialist franchising lawyer.
Please don't think that this is a document that you can have drawn up by just any solicitor, or that you can buy online or write yourself. It is strongly advised that you appoint a BFA accredited franchising lawyer to draft it for you or you are putting your entire future network and brand at risk to save a comparatively small amount of money.
Get expert advice
Seek advice on setting up a pilot operation to test your business model in other markets prior to franchising and expanding on a wider scale. Do not make the mistake of assuming that since your business works well in your location that there will be the same demand in other locations.
You will be required to clearly define viable franchise territories prior to selling franchises to others. Territory mapping organisations that specialise in territory mapping solutions for franchise networks will provide a structured approach to help you identify future territories that can be franchised (which are normally based on similar criteria to your existing proven operations).
Recruit the correct franchisees
Recruiting the correct franchisees is a crucial step in building a successful franchise brand and network. Your franchisees will represent your brand and therefore they are required to meet key criteria in terms of experience, personality, financial resource, ability to follow your system and develop your brand within their licensed area, to name a few.
Platinum Wave franchising are a leading UK and International franchise consultancy firm who have many years of a proven track record in all of the above areas having both franchised their own brands, and those of their clients from the very start of the franchising journey to assisting their clients to grow on an international scale.
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
The franchisor's Intellectual Property. These are in the nature of:
- Trade Name
- Methods of Production
- Confidential Information and know-how
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
The Operations Manual
The contractual relationship between franchisor and franchisee is formalised in the Franchise Agreement. While the Franchise Agreement sets out the initial and ongoing requirements of the contractual relationship and the obligations of both parties, it doesn’t explain in detail, how the franchisor and the franchisee must fulfil their obligations. This is the role of the Operations Manual.
The importance of the Manual’s role cannot be over-stated because, together with a comprehensive training programme and ongoing support, this is how the franchisor will transfer their know-how and embed the business system. A comprehensive, well-constructed Operations Manual should evolve from first edition into a powerful management tool to help the franchisee establish and grow their business, renew the term, or prepare it for sale.
The franchisor must provide access to the Operations Manual on signing the Agreement. However, many franchisors introduce The Manual to the new franchisee during induction training so that they become fully familiar with its purpose, how it is organised and how the new business will be operated, audited, and improved. Initially, the franchisee will use the processes in The Manual to set up, launch and establish their new business over the coming 12 months. Actions will need to be completed, as specified, and approvals sought. Therefore, The Manual should provide the franchisee with detailed procedures so that the business model can be replicated successfully from the outset.
The Manual must be up-to-date, relevant and reflect amendments, modification made to the system, new products or services introduced. However, should a dispute arise, the Franchise Agreement takes precedence. The latest edition of The Manual should be easily accessible to the franchisee’s team for reference whenever needed for the duration of the contract.
In franchising, intellectual property (IP) consists of many different aspects, from trademarks (brand name and logo) through to products, services and processes that differentiate the business offer. The Operations Manual is the tangible way of protecting the franchisor’s IP. Because it comprises secret and substantive information about the franchisor’s working methods and practices that are not disclosed to the public, great care must be taken to ensure that no part of The Manual falls into the hands of any unauthorised person. The Manual is protected by copyright and access will be granted only with the franchisor’s permission.
Operating to processes and procedures may seem onerous – and not a little daunting – if you don’t have much or any management experience or some of the skills required. However, when supported with good systems and the sound advice and guidance of the franchisor’s professional personnel, you should be able to deliver excellent value to your customers and gain competitive advantage in your territory.
A competitive advantage helps the business distinguish itself from its competitors and allows it to charge higher prices than its competitors, build brand loyalty, and attract a wider audience. It’s what makes a customer choose one business over another. Therefore, by understanding, and promoting your franchise strategically and skilfully, you can increase market share.
Know-How & Business System
Know-How is defined as confidentially or closely held information. This will be in the form of technical data, formulas, standards, technical information, specifications, processes, methods, handbooks, raw materials, as well as all information, knowledge, assistance, trade practices and secrets – and improvements. Specifically in a franchise, these are communicated by the franchisor to the franchisee via the Operations Manual.
The Business System is how the franchisee will meet customer expectations by implementing a systematic approach to analysing, measuring, comparing, and testing all the possibilities of what the customer wants, or doesn’t want. A strong Business System, capable of surviving the highs and lows of a business cycle, is at the heart of any high performing franchise model and should provide the franchisee with a process to fix their processes – e.g. by performing internal or external audits.
Implementation of a good Business System will help you to reduce costs and prevent the erosion of profits. When applied to safety, hygiene, quality, or getting the job done in a timely manner, this will give you effective, efficient, and repeatable results. It should also provide you with a clear plan to develop the business and improve top-line performance.
For example, the aim of a sound recruitment system is to provide suitable training and opportunities to all franchise team members so they can complete their work more efficiently and effectively. Franchisees also seek to harness their employees’ ideas and creativity and, in the process, increase their personal engagement. Having a procedure in place allows you to integrate new team members swiftly and makes it easy for them to see their role within the franchise and suggest new ideas that can improve the business.
An established franchisor’s Know-How will have been accumulated over many years – much of it learned the hard way. The way in which the complete Business System works, should be rigorously tried, and tested – and improved. Mistakes will have been made – and corrected – so that the franchisee can benefit from their first day to their last.
Standard Operating Procedures
Most likely, the franchisor’s Know-How and Business System will be presented in the Operations Manual as a structured set of Standard Operating Procedures – commonly known as SOPs. SOPs capture organisational knowledge for all core processes that are repeatable. The franchisor’s objective, then, is to ensure that the franchisee gets a reliable result – first time, every time. To quote Aristotle: "We are what we repeatedly do. Excellence, then, is not an act, but a habit".
An SOP needs to be flexible and take what is good and working well – and improve upon it. When replicated across a franchisee network, this results in three powerful interdependent pillars of a franchise:
- Consistency; and
Quality is everything that adds up to providing complete customer satisfaction so that the franchisee can build on the franchisor’s desire to be the customer’s No.1 Choice – e.g. extensive choice of locations, longer opening hours, highly trained personnel. It is superior quality, in terms of knowledge, selling skills and an all-round professionalism, which are essential elements in communicating the franchisor’s vision and brand values. Ultimately, this will lead to more, loyal customers who become great brand advocates.
Consistency needs to be applied to every process – i.e. from the people the franchisee recruits, the training they provide, to the services and/or products that they sell. However, these processes will need to be sufficiently flexible to cope with potential external economic, political, legal, demographic, social, competitive, global, and technological influences, any of which can affect the smooth running of a business. A perfect example of multiple influences is the Covid-19 pandemic.
Regulatory compliance and compliance with the franchisor’s requirements and policies form the bedrock of a franchise. The franchisee’s obligations – and those of the franchisor – will be set out in the Terms and Conditions of the Franchise Agreement. However, it is the job of the Standard Operating Procedures to underpin these Terms and Conditions with the operational detail necessary for compliance. Non-compliance can be costly when the consequences are financial penalties, court costs, suspension of services. For example, a serious case of food poisoning in a fast-food franchise could lead to a fine or closure of the business. It would also damage the brand.
An operational process is an organised set of activities or tasks that produces a specific service or product and, usually, addresses what, when, why, who, and how questions.
- What is the process?
- When is this required?
- Why is it necessary – i.e. outcomes, results and payoffs?
- Who is responsible for meeting the franchisor’s minimum operating requirements?
- What will happen if the franchisee doesn’t conform to the specification?
- How will the process be performed, checked, and measured?
- What tools and resources are available to assist the activities or tasks?
The process should be described using logical, easy to follow steps. These steps will be tracked as needed, revised continuously – and improved. This is the recipe for efficiency, growth, and profit so the business can scale forward.
Franchises are service led and highly customer focused. A great customer journey doesn’t happen by accident. Customers are at the heart of every business; therefore, the franchisee will need to learn how to build long-term relationships with their customers and develop new ones. It is essential that a relationship of trust is built with every customer, to earn their loyalty so that, ultimately, customers become great brand ambassadors.
Let’s examine the processes involved in this simplified, fictitious example. A growing bakery franchise has 15 stores in prime High Street locations. Customers love the irresistible smell of fresh coffee and newly baked bread as they enter the spotlessly clean bakery. In the window display, there’s a wonderful variety of delicious cakes and pastries at competitive prices to which passers-by are temptingly drawn. At point of sale, there are several special offers – including ‘Loaf of the Day’, ‘Cake of the Day’ and ‘Coffee Flavour of the Week’. Collectively, the chefs across the franchise network bake thousands of loaves, cakes, and pastries every day to the same recipe. There are 25 core recipes.
The Franchise Manager always orders top quality ingredients from the same reliable quality-checked suppliers approved by the franchisor. It’s vital that deliveries of ingredients arrive at each franchise on time. Chefs follow the same process measuring out exact quantities and using the same method for a recipe so that each loaf, cake, or pastry will be baked to the same standard of excellence as those baked the day before – and will be the day after. Every barista ensures that the roasted Italian coffee they serve is freshly ground, perfectly tamped and the cappuccino milk is heated to the exact temperature necessary to obtain the right quantity and density of froth. All team members understand that any wastage will erode the bakery’s profits.
The staff, in their smart, pressed workwear and name badges, greet each customer warmly with a genuine welcoming smile and a cheery ‘good morning / good afternoon’ remembering the names of their regulars – always. The counter staff are skilled at selling the bakery’s products and many have been there since the franchise was launched five years ago. They know the ingredients of every product – which ones are gluten free, contain lactose, or nuts. They cannot afford to get it wrong in case a customer has an allergy. Staff often manage to persuade the customer to try a little something extra upselling the value of the sale.
Regardless of where a bakery is located, it’s instantly recognisable. Customers feel comfortable and safe in the familiar pastel co-ordinated surroundings. They receive the same welcome, enjoy the same high-quality products, sold by a small friendly team who have created a happy and harmonious environment. Customers can choose how they like to pay and leave the bakery looking forward their next visit, purchases placed carefully in eco-friendly carrier bags with the bakery’s corporate logo, local phone number and longer than average opening times advertised prominently. At the end of the day, all equipment is stripped down, utensils cleaned, the shop and bakery floors and surfaces scrubbed and sanitised ready for opening the next day.
All new customer contact details are added to the bakery’s email list and each bakery enjoys a strong core of loyal customers who need to be – and like being – nurtured. Customers enjoy their regular visits, but they also love receiving the monthly newsletter introducing special offers and recipes with the occasional new product to try, free of charge, on their next visit. Loyal customers recommend the bakery to all their friends. So, the bakery acquires more loyal customers to serve.
Let’s take a moment to consider some of the processes that the franchisor would need to cover in the Operations Manual.
- Bakery Establishment – e.g. legal entity, registrations, location, site selection, acquisition, design, fit out, equipment for shop and back of house baking
- HR & Recruitment – e.g. team job roles and descriptions, advertising, interviewing, selection, onboarding (Induction), people management
- Initial, Development & Refresher Training – e.g. customer service, bakery, coffee preparation, selling and management skills
- Food & Beverage – e.g. recipes for bread, cakes, pastries, beverages
- Environment – e.g. ambiance, team presentation, workwear, cleanliness, maintenance
- Marketing & Promotion – e.g. advertising & PR, launch programme, brand guidelines, point of sale materials, merchandising, data capture and protection, communications
- Health, Safety & Hygiene – e.g. food safety, customer, employee and contractor safety
- Supply Chain – e.g. approved suppliers, ordering, checking, safe storage,
- Quality Control – e.g. product and batch testing, internal and external audits
- IT Systems – e.g. Till system, payment options, financial management, general administration
When you add all the daily, weekly, monthly, quarterly, and annual routines that the franchisee and the team will need to perform, it follows that to be useful, the processes that need to be described in the Operations Manual will be substantial.
Due Diligence & The Manual
During the process of due diligence – i.e. homework that you need to conduct before signing the Franchise Agreement – it makes sense to gather as much intelligence as you can about the Operations Manual.
The Terms and Conditions of the Franchise Agreement state that the franchisee’s obligations will be carried out ‘as described in The Manual’. These references should dovetail with the Standard Operating Procedures set out in The Manual whose job it should be to underpin every regulation, rule, and policy as a minimum requirement.
Because franchisees are required to conduct their business strictly in accordance with The Manual, it would seem entirely reasonable that an intending franchisee would be given sufficient opportunity to study The Manual and determine, for themselves, how useful it will be in the day-to-day operation of the franchise in which they may invest. However, a franchisor is not obliged to give you access to The Manual until you have signed the Franchise Agreement. Also, there may not be sufficient time to look through The Manual in any depth – even when you have signed an Intending Franchisee Confidentiality Agreement.
One reason is that the Operations Manual is most likely to be published in an electronic format, rather than the weighty tomes that often remain on a shelf gathering dust. Today, the latest edition of The Manual may only be accessed via a password-protected franchisee portal.
A franchisee portal is a specially designed website that serves as the single point of access for information. It can also be considered a library of personalised and categorised content. A franchisee portal assists in search navigation, personalisation, notification, and information integration. As a result, The Manual becomes part of a highly interactive system often providing features such as task management, collaboration, business intelligence and application integration.
Other franchisors may keep their Manual in cloud-based systems such as Dropbox or Microsoft Sharepoint. These also require a password for access. Although a good, simple alternative to the franchisee portal, this may be more limited in scope and functionality.
Access to The Manual will be provided for the duration of the term of the agreement and is for the exclusive use by the Franchise Owner/Manager and their staff. However, it remains the sole and exclusive property of the franchisor. When a team member leaves, or when the Agreement is terminated, password access will be withdrawn immediately.
An electronic version of the Operations Manual is easy for the franchisee to access and refer to, as part of day-to-day operations. It is easy for the franchisor to keep up to date in a timely manner – i.e. when updates are necessary, a modification is made or a new product/service is introduced to the Business System.
This is a summary of the classic building blocks of a good Operations Manual:
- People: How to get the business off to a flying start and deliver the perfect customer experience – first time, every time – through a handpicked, motivated Team.
- Sales & Marketing: How to present the brand in accordance with brand guidelines and promote it to generate more business through local marketing and social media.
- Operations & Management: How to manage customers, the workplace and achieve a work-home life balance.
- Growth & Profit: How to keep finances on track, grow the business and develop new skills, manage renewal, and prepare the business for sale.
- Regardless of its format, the Operations Manual must be fit for purpose – i.e. up-to-date
- Relevant (underpins The Agreement)
- Detailed (as described in this article)
- Well written and easy to understand
- Readable (without waffle and jargon)
- Well laid out (a simple page design)
- Easy to navigate (fully searchable)
When you meet the franchisor, you should obtain satisfactory answers to these questions:
- What is the format of The Manual?
- How and when do I obtain access to it?
- How is The Manual organised?
- Can I see a Table of Contents – and / or a sample Section
- When was it last updated?
- Is there a formal process for updating it?
- Will I/my team have an opportunity to suggest improvements?
Note: If you intend to buy a franchise which has not yet launched and is proving / piloting the concept over 12 to 18 months, some franchise systems may not be fully embedded and, therefore, not fully documented. In which case, you have a unique opportunity to become involved in the evolution of the Business System and the Operations Manual. Armed with this knowledge, you should now have a good perspective on what makes The Manual a powerful quality management tool that can benefit new franchisees for when the franchise is launched officially.
Also, when you talk to franchisees, as part of your due diligence, take the opportunity to ask them about The Manual:
- Was The Manual helpful when they established their business?
- Do they still refer to The Manual – if not, why not?
- Does it help them grow their business?
- Are they empowered to suggest improvements towards Best Practice?
- Has the franchisor appointed a group of franchisees to review The Manual and feed back the network’s comments?
Only when you know what the Operations Manual contains, how it is supported and have the answers to these questions, can you decide whether The Manual will be sufficiently effective to establish, run and grow your new business.
The Future for The Manual
As people have less time and everything becomes more digital, changes faster, and becomes more complex, franchisors will employ faster, leaner, knowledge-sharing solutions. Already, technology is making procedures more digital and accessible and the exchange of information more effective and efficient. For example, QR (Quick Response) codes can be read and understood by mobile devices. Therefore, in the coming years, the way in which franchisors engage with their franchise networks will become more innovative, flexible, and instant. Franchisees and their teams, whatever language they speak and wherever they are in the world, will have the information they need at their fingertips as soon as they need it, not as a traditional Operations Manual. No longer will they need to waste valuable time searching manually for an answer.
About the Author
Penny Hopkinson, Manual Writers has over 35 years' experience of writing manuals. Penny advises and coaches on how best to develop and publish an Operations Manual to impose and replicate uniformity and conformity across a developing franchise, licence or branch Network. To find out more, please contact Penny on 07956 315750 or firstname.lastname@example.org for a no-obligation strategy call.
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.
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.
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.
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
What professional advice should I seek?
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.
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.
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.