Franchising is a big growth area for businesses in all sectors, and is usually viewed as a cost-effective and efficient means of swift business expansion.
Increasingly, entrepreneurs will try to devise a business plan with the potential for future franchising in mind, but what are some of the main considerations when setting up such an operation?
The basic components of a franchise are:-
- The use of a brand name owned by the franchisor, in a business based on the franchisor’s own “concept” or “system”, such that the business has a clearly recognisable identity and format which is consistent across the franchise estate;
- A franchisor will carefully control how the franchise business is operated by franchisees, and will usually be paid license fees (or royalties) by franchisees linked to the turnover of each of the franchisees’ businesses;
- A franchisor will provide assistance to the franchisee, both in terms of guidance in operating the franchise business and promoting a franchise brand.
Here are my top five starting tips if you are considering launching your own franchise model:-
1. Research your model and assess suitability
The most successful franchise models tend to be based upon an existing business with a proven track record of success, rather than a brand new “start up” business which has not been tested in the market. Obviously in either case it is important to have a business model which can be “commoditised” and which will appeal to potential franchisees.
Ultimately, it would make your franchise more credible if you either have an existing (successful) business upon which the franchise can be based, or you have at least run a “pilot” operation to demonstrate how this will work in practice.
The British Franchise Association and other industry guidance may be very helpful in researching what other franchise businesses already exist, and visiting franchising exhibitions may well also prove helpful. A lot of background research and preparatory work will be required, but the first formal step is to prepare a Business Plan detailing your business model and explaining and confirming how the products or services being offered are suitable for franchising.
2. Establish your brand
One of the key attractions of buying a franchise is that there is already (usually) an existing business brand in the market, so that customer “trust” in the brand has already been established.
Nowadays, brand value (both in terms of brand recognition and brand policing) are extremely important, and it is well worthwhile designing a strong brand which is capable of registration as a trade mark – in the latter case there are rules over what can be registered, and a potential franchisor would be wise to consider this at an early stage before committing significant recsourse to brand development.
3. Develop your Operations Manual
Most franchises involve the hand-over to new franchisees of an Operations Manual, essentially a franchisee user “bible” describing in detail how the franchise business must be operated, including policies, procedures, sample contracts, forms etc, which the franchisor has already pulled together. The intention is that franchisees then operate their businesses consistently and in accordance with sound established practices.
The Operations Manual can be expected to evolve as the franchise model itself develops, but a significant amount of work will be required to get this to a point suitable for roll-out to a franchisees. The contents of the Operations Manual are fiercely protected by franchisors to prevent them from being copied by industry competitors or falling into the wrong hands, and will often reflect many hundreds of hours of preparatory work by the franchisor – an early start in pulling this together is therefore well worthwhile.
4. Pick franchise sites carefully and plan ahead
Depending upon the nature of the franchise, the business location may be of critical importance to its success, particularly in the case of retail premises. Commonly franchisors will wish to ensure franchisees pick the right location from which to run their business, and will often assist with site location and also help negotiate the terms of a lease from the landlord.
In some instances, as the new franchisee will often be a newly-formed company with no trading track record, the franchisor may take a head lease of the business premises and then grant a sub-lease to its franchisee in order to satisfy the landlord. This also has the advantage of ensuring (from the franchisor’s perspective) continuity of the business in the event that for some reason the franchisee does not operate the franchised business well and the franchisor has to terminate the franchise and “step in” to run the business itself.
5. Protecting your franchise rights by contract
Franchise Agreements tend to be lengthy and detailed documents which are drafted very much in favour of the franchisor, providing multi-layered protection for the franchise brand, franchise model and know-how. Drafting and developing a “standard” form of franchise agreement can be a sizeable exercise, and one which will certainly need specialist legal advice and guidance.
Commonly Franchise Agreements tend to be virtually non-negotiable by franchisees, and remain substantially in the form presented by the franchisor. Nevertheless, franchisees are usually required to take legal advice to ensure they are at least aware of what they are agreeing to, even if they cannot actually change much to redress the balance of the document. As a franchisor, it is worthwhile investing in a well legally-drafted agreement from the outset to adequately protect your rights as these are long-term agreements which cannot readily be changed once they are in force.Return to the blog archive »