Franchising is an agreement where the business owner grants another individual permission to replicate its branding, systems and processes to create their own successful operation.
The franchisee (the new adopter) usually pays a one-off franchise purchase fee, in addition to a percentage of sales on an ongoing basis. In this way, franchising offers the Franchisor (original proprietor) a stable route to growth, avoiding taking on further risk to the business owner. This is due to the new individual (Franchisee) coming in would be creating their own independent business, as a separate business entity to the original. Creating their own limited company, taking on their own business loans and debtors, so that should there be any unforeseen circumstances the original proprietor isn’t affected other than a loss of brand reputation.
There are around 1,000 franchise systems in the UK in a myriad of sectors, currently contributing to £15 billion of the UK’s turnover. It is surprising how many franchises there are, including many household names, such as: McDonalds, Specsavers, O2, Boots, Levi’s Stores and Anytime Fitness. However, it is also surprising how few business look at this as a valid model for growth. Like any easily replicatable business model, successful businesses can be franchised and the opportunity for forward thinking business owners is ripe for the taking.
To grow a successful franchised operation, there are three main pillars which need to be nurtured: the franchise agreement drawn up between franchisee and business owner, the operations manual which details all procedures and processes and efficient ways of working, and finally the USP and brand strength of the business – what makes it different.
Franchising your business will require financial investment and time too, to ensure the building blocks are in place ready for someone else to grow their own business. It is worth researching other competitors or similar sized operations early on, to see how they proposition their model.
Usually, £100K minimum is required to set up a basic franchise model which includes drawing up a legally binding franchise agreement, creating the operations manual, developing a suitable website to attract potential franchisees and marketing on franchise directories to name but a few.
Such investment is likely to require funding. To approach financial institutions and attract the best deal on funding, a solid and detailed business plan and forecast outlining franchise growth and franchisee start-up costs is required.
Attracting the right franchisees is also a key success factor. You will need to be clear why a franchisee should invest in your business rather than open-up independently. As a business owner, you will have three key skill sets: financial, operational and marketing management. These are all underpinned by good leadership skills. A new Franchisee is likely only to have only one or two of these elements and the job of the franchisor is to support and help them develop their abilities in each area to succeed. Time spent training franchisees should be offset and factored into your franchise’s initial investment fee.
Expanding your operation through franchising could offer a the opportunity for growth without the risks associated with opening additional owner-managed outlets. However, potential franchisors need to consider the opportunity very carefully. Preparation and talking with experts early on is essential. At d&t we can offer initial business advisory meetings to talk about the financials, business structure, business planning plus independent funding sourcing options. The British Franchise Association (bfa) website www.thebfa.org is also a good place to investigate. The bfa lists affiliates who are professional franchise advisors, who are all required to abide by a code of ethics and so can provide you with all the advice you need to franchise your business successfully.