A SECTION FOR ENTREPRENEURS: Crash course - Franchising your business

A SECTION FOR ENTREPRENEURS: Crash course - Franchising your business - Your business is a great idea, but it could be much bigger. Trouble is, you haven't got the resources to expand in the way you'd like. So why not franchise it, and watch the cash roll

by ALEXANDER GARRETT
Last Updated: 31 Aug 2010

Your business is a great idea, but it could be much bigger. Trouble is, you haven't got the resources to expand in the way you'd like. So why not franchise it, and watch the cash roll in as others pay you for the privilege of promoting your brand? It hasn't done McDonald's any harm. But is that what franchising is really about?

GET ESTABLISHED. 'You should have a proven idea that works,' says Phil Atherton, head of franchising at NatWest. 'Your business should have been up and running for at least two years, and you should have a brand that is recognised.' Without a track record you will struggle to attract suitable franchisees.

CONSIDER YOUR MOTIVES. Good reasons to franchise your business are to speed up expansion, to take you into untested territories - for example, abroad - and to bring in capital from outside. A bad reason is trying to rescue a failing business.

THINK REPLICATION. To succeed as a franchise, a business must be easily replicable. If your business depends on the unique skills of one or two individuals, or if it cannot be readily enshrined in a set of operations manuals, it may not work.

SET UP A PILOT. Test the concept over at least a year, perhaps by converting an existing outlet into a franchise. 'A comprehensive pilot operation will ensure the right strategy, highlight problem areas and let the franchisor finalise the package,' says Simon Wise, deputy director of the British Franchise Association.

BE PREPARED TO INVEST. Setting up a franchise will require management time and financial investment. Expect to wait several years before seeing a return. And make sure the core business doesn't suffer as management takes its eye off the ball.

CALL ADVISERS 'R' US. Even if you don't use franchising consultants, you will certainly need the help of specialist lawyers. The franchise contract typically lasts about five years and defines the responsibilities of both parties; you may also want a non-disclosure agreement to protect yourself against a potential franchisee stealing your ideas. The BFA offers seminars and a system of mentoring to would-be franchisors.

GET THE CHARGES RIGHT. You can take your annual management fee as a flat fee, a percentage of turnover or a mark-up on goods supplied. Make sure the formula incentivises both sides and provides scope for each to make a healthy profit.

RECRUIT FOR SUCCESS. Only ever recruit franchisees with the skills and attributes to make a success of the business, advises Cathryn Hayes, national franchising manager at HSBC. 'If they're no good, they will take up a huge amount of management time.' Be realistic: good franchisees are in short supply.

GIVE VALUE FOR MONEY. In return for the charges you levy, franchisees will expect you to provide support, training and strategic management commensurate with the cash you receive.

CREATE OPEN COMMUNICATION CHANNELS. 'A good franchisor will make it easy for franchisees to talk to each other,' says Hayes. 'It is a good idea to establish a national council or similar forum, which creates a single line of communication to management. That allows you to consult your franchisees and ensure that the best ideas come through.' If you're supplying product, do so on a transparent basis so they can see your mark-up.

DO SAY: 'Tofu2Go is looking for motivated, hard-working people prepared to invest in developing their own business and expanding our successful brand name.'

DON'T SAY: 'We just carve up the UK, find 50 suckers with a redundancy cheque to spend, and we're quids in.'

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