Whether to grow profits, sales turnover or market exposure franchising is a great option for business. Very cost effective, and you still get your business, your brand, basically hired out with a manager who does all the heavy lifting as far as day to day running goes.
There are a few do's and don'ts:
- Take expert advice as early as possible. To get in touch with accredited adviser visit the British Franchise Association (BFA)
- Read as much as possible. Do the research. Find out every advantage and every pitfall to enable a fully informed decision. Two major franchise publications are available from stores, The BFA's Business Franchise online version and The Franchise Magazine online version.
- The BFA website is informative, runs seminars and other events for prospective franchisors (you) and franchisees (buyers of franchise).
- Market research is a very important area. This decides where to open a franchise/s. The target market will need to be identified as well as areas population and any local government laws.
- Be ready to work hard, and spend money, to get the business model to a fit franchise stage
What is Franchising?
- Underestimate initial costs
- Overestimate growth rate, especially when new to franchising
- Assume profit will come from initial fees. Sometimes profit won't be apparent until annual renewal fees and on-going charges based on their turnover or profit levels. There might also be a mark-up on product supplied to them by your business.
- Try to franchise alone.
For payment of a fee, another person (franchisee) effectively sets up another branch of the business, and use your branding. It's not so simple as to letting them to pay a load of money and then leaving them to it. The brand and ultimately the business will suffer if you don't mentor and train them. A franchisee will expect initial and ongoing training and support from the franchisor in order to run the business and emulate success.
Is your business suitable for franchising?
An idea cannot be franchised, but you a proven business can. These have been shown to operate successfully and profitably in a particular market, whether that's locally, regionally, nationally or internationally.
The following are probably NOT suitable for franchising:
Have you got what it takes?
- A business not making a profit or if gross margins are very low
- An unknown brand
- A business operating in a highly regulated industry
- A product or service with short-lived popularity
- A business requiring highly skilled staff
- A complex business needing intense training anyone to become accomplished at it
- A one-person business or those whose level of service or expertise relies on key individuals
- Regional products or services without the same demand outside of a specific region
In theory a franchise is a wonderful idea, but that doesn't mean it's easy, or cheap. Considerable amounts of time and money will be spent before profits roll in.
The skills involved in managing a franchised network are very different to those involved in running a business. Think in terms of the franchisee running their franchise as you do your business now. The difference is the franchisor (you) then takes on a managerial, support role of the franchisee. You are there to see the brand is presented properly and the manager is capable of running all the everyday concerns.
A franchisor's on-going commitment, from selection and training to product development and marketing support, is vital to the success of the network. If franchisees feel a lack of support, or too much interference, from you they will leave. So it can be a very precise process.
Franchisors provide core head-office type support to all franchisees.
Including such things as:
- Brand promotion and PR
- Advertising, marketing support
- Quality control
- Key customer account management
- Keeping in regular contact
- The management and discipline of all franchisees
Depending on the size of the franchise operation, may also include product and service development, financial and administrative services, provision of network communications. Some also set up a network of field support staff that provides support and on-going product and operational training.
Monitor franchisees and others' use of your brand to protect it from misuse or abuse. Undertake regular market research to ensure the brand image and positioning remain positive. A positive image is important in the eyes of both the target customers and existing or potential franchisees. The brand is the key thing franchisees buy into, so protect it at all costs. Take professional advice on protecting any trade and service marks as well.
Create a comprehensive 'operations manual'. This detailed handbook of the business details how each part functions. It provides franchisees with clear instructions relating to quality and performance standards. Make sure to cover every aspect of the business including purchasing, selling and invoicing, complaint handling, customer management and performance reporting.
Perhaps the hardest, and most expensive part, of franchising. New franchisors have conversion ratios of serious enquiries to appointment of around 10:1. Established franchisors have a conversion ratio which is often higher than 50:1 and sometimes higher than 100:1*
Don't expect franchisees find you. Go in search of them. A sound business proposition will need to be presented convince them that you are the best franchise for them to join. Potential franchisees will want to know what business they can expect to do and how profitable it can be. To cover all this information you'll need to create a prospectus or other professionally produced document containing all the relevant information.
No matter how hard it seems to find suitable franchisees, still have a robust approvals procedure. All franchisees must be suitable business partners capable of making their business a success. The success of the entire network can be affected by a bad choice. Make sure they have a sound sense of business, have the right attitude to get the most out of staff, and can make decisions soundly when they need to.
To seek out and recruit franchisees consider:
The BFA website
*Source: British Franchise Association