Most business owners want their business to grow over time. If done correctly, this can make your business more profitable and more attractive to a potential buyer if your ultimate intention is to sell.
However, it’s not easy and can require significant funding. Franchising is one potential route to expansion which requires less capital investment.
Franchising is becoming big business. It contributed some £13.4bn to the UK economy last year, an increase of 8% on 2011, a NatWest/British Franchise Association (BFA) Franchise survey suggests.
In the UK there are currently around 40,100 franchisee outlets (up 4% on the previous year) and an estimated 594,000 people are employed by franchising (a rise of 14%).
Thinking about franchising your own business? Here are some things you should consider before going down the franchising route:
1. Should you do it?
For franchising to work you should have an existing, profitable business that has a proven financial track record and business model. This will be attractive to any potential franchisees and will demonstrate to them that it is worth their while buying into your business. You should also have a wide enough market and a unique selling point to make your business stand out from the competition. After all, there needs to be a reason for someone to want to become your franchisee rather than setting up on their own.
2. Test the franchise
The BFA recommends testing your franchise in the form of a pilot operation lasting at least 12 months (or longer if your business is seasonal). You should run the pilot in different locations to test your business in more than one geographical area. Doing so will highlight any problems or inefficiencies and help you to hone your strategy and system before committing to developing a franchise network. It will be easier to fix any issues with the franchise system centrally in the first instance, rather than having later to adjust the approach of several franchisees.
3. Refine your targets
Although your franchisees will be running your business in their respective locations, as their franchisor you will need to measure their performance and set clear targets for them to meet. This will give you a clear idea of how they are performing and will afford you leverage when it comes to negotiating any renewals or terminating the arrangement. This can be included expressly in the franchise agreement, and also in the Operations Manual (see below).
4. Find a committed franchisee to start your franchise
Any potential franchisee should be passionate about your business and an idea of a profit making strategy. They should be hungry, motivated and committed to making a success of the franchise as there will likely be long unsociable hours (especially at the outset!).
5. Produce an Operations Manual
This is vital for a successful system. The Manual is a powerful tool for ensuring quality and it is the document which assists the franchisees in the detailed replication of the system. It will allow you to implement and uphold standards of quality and consistency across the network and control and monitor performance of your franchisees. It will also provide a useful method of introducing any updates or developments to the system.
6. Legal advice
It is important to take legal advice to franchise your business properly. This should be done from the outset in order to produce a standard style franchise agreement, and also in relation to the franchisee manual and any Intellectual Property arrangements.
If you are looking to become a member of the British Franchise Association, your franchise agreement will have to meet its requirements so it is important that this is drafted by experienced franchise lawyers. It is also important to have a standard agreement which doesn't vary too much, as for example, different pricing for different franchisees in the network may present resentment issues in the future.
7. Franchise package
You should develop a franchise package which will give your franchisee everything that they need to get on their feet. This will include the basics, such as operation manuals, stationary and marketing materials etc. Depending on the nature of your business, this may also include websites, assistance with store fit-outs and broadband/telephone connections.
Again this is something which should be planned out with costs being considered at an early stage.
8. Protect all IPR
Having a strong brand is imperative to a successful franchise. As a franchisor you should ensure that your brand is unique and well protected. You should protect your IPR by registering all trade marks, patents and domain names with the appropriate registration offices.
9. Training & Support
The training and ongoing support you provide will be one of the most important factors for any potential franchisees. Franchisees will need a lot of time and support in order to learn your business, especially at the beginning. Running face to face seminars, holding quarterly meetings with the entire network and hosting online forums are all ways of potentially supporting your franchises. The costs and practicalities of doing so should be considered at an early stage.
10. Continue to improve your business
Franchisees will expect to see that they are working for an innovative franchisor leading by example. You should look for ways to improve the franchise system and support your franchisees to implement these. An evolving franchise system will keep morale strong and ensure that your franchise stays competitive.
Paul Breen is a solicitor in the corporate team of Brodies LLP. For more information, contact firstname.lastname@example.org.