You're ready to grow your business, but need finance. Could franchising be the answer? Martin Malcolm outlines how you get others to buy into your brand.
- Assess if your business has franchising potential. Franchisees buy the right to establish copies of your business. Some enterprises naturally suit franchising: they prosper in diverse locations and people can replicate them without mastering complex skills. If your business model demands specific sites or highly-qualified specialists, it's unlikely to suit franchising.
- Franchises thrive on brand-recognition, so ensure your trademark is protected. The Intellectual Property Office can help secure your rights.
- Write an operations manual describing how to establish and run your franchise, in detail. It gives you overall control, telling franchisees exactly what to do to maintain standards. It shows potential franchisees you know your business inside-out. Your expertise is what ultimately persuades them to buy into your business.
- Even long-established businesses should run a pilot franchise for at least a year, to test their operations manual. Gather data on the pilot's set-up costs and profits to prove your franchise's viability.
- Set your franchise fees. Calculate an initial fee for setting-up each franchisee in business. Include premises costs, supplies, vehicles, office systems and advertising. Aim to break even rather than profit, to avoid undermining the fledgling operation.
- Your profit comes from royalties, typically 10% of turnover, levied on the franchisee over the business' lifetime. Some franchisors charge a mark-up on products supplied instead.
- Draft a franchise agreement. Check the online database of the British Franchise Association (BFA) for an experienced franchise solicitor who can draft this key contract. It specifies fees, franchisee's duties and how parties can terminate the agreement. It sets the franchise's duration (typically five years) and its renewal terms.
- Franchisees are investors, so design a prospectus with clear financial projections. Advertise for franchisees through trade magazines and websites or at BFA exhibitions. Don't be tempted to take everyone. Interview candidates, selecting those with suitable skills and management experience.
- Base a step-by-step training programme on your operations manual. Emphasise that franchisees must follow your business method. This harnesses your experience to make the franchise successful and stops novices experimenting in ways that could weaken or damage your brand.
- Provide support with tasks such as invoicing, market research, staff training and advertising. This fosters strong franchisee relationships, ensuring the business realises its full potential.