Franchising A Business
So you’ve got a business that’s doing well and now you want to scale it up through launching your own franchise. It’s a huge topic but this primer highlights a few immediate things to consider before franchising a business in the UK. Speak with a Franchise Consultant like Lime Licensing Group or find a list of advisors at www.franchiselife.co.uk
The first thing to bear in mind when before franchising a business is that you will be admired from afar but not for the reasons you might want. Many highly experienced franchisors, executives and entrepreneurs will be checking you out with a view to doing it better than you. It’s easier than you think because those with the knowledge to franchise a business can enter into a joint venture with your biggest competitor and launch the franchise you were thinking of. So, your first step is to be very careful who you share your franchise dream with. Plagiarism is rife in the industry. Adopt a confidentiality policy within your company, get people to sign NDA’s (including your bank manager / accountant etc) and start getting paranoid who you discuss it with.
Franchising a business should only really be done from a position of profit, this means that any business owner who is going to be taken seriously must have an already successful business before launching a franchise based upon it. Those words “already successful” are paramount and means that business start ups and all those ideas and concepts, no matter how well thought out, are unsuited to franchising. Don’t even contemplate launching a franchise to raise funds or save a failing business it won’t work and you’ll hurt others in the process. It’s also true to say that in the same way that franchisees must be able to afford buying your own franchise, you’ll also need to be able to afford to launch your franchise model too. If your business is a bit strapped for cash then concentrate on laying some financial fat down in the company before franchising a business.
Franchising a business entails granting the rights to your brand to others to replicate the business model so it follows that you usually need to own the brand name to do that. So before franchising a business ensure that you own the intellectual property, or at least have the rights to it if someone else does. The base elements of your intellectual property as far as franchising is concerned are usually trademarks, but research and then grab domain names and social profiles too. Take advice from Lime Licensing Group as to the other elements that you may need or speak to a lawyer but get your IP in order at the outset. http://www.limelicensinggroup.co.uk/ip-protection/
Setting up a pilot franchise
Before franchising a business you need to prove that a satisfactory commercial environment exists for what you are doing and most businesses do that with a pilot franchise. A pilot franchise is a test based upon the current model using someone who will act and integrate with you in the same way as a new franchisee would. They can be employed or self employed because it is the results of their activity that you want to discover. It may be that the characteristics of your current business are suitable to be the pilot franchise but by running a pilot (or a test or template as they are also called) you’ll learn a lot yourself and carry the credibility that you need to demonstrate to new franchisees that the business is already successful in the hands of a new franchisee and that the relationship between franchise owner and franchisor has been well thought out in light of practical experience. A pilot should be run for a long enough period to experience the desired outcome, great franchisors can look a franchisee in the eye and tell them that if they do A,B or C, they’ll get X,Y or Z. and that if seasonal variations exist they are allowed for.
Replicating what you do by franchising your existing business will only be successful if the model is successful in the hands of a pilot franchise owner and the restrictions they’ll have as a franchisee. This means that you need to factor in a few limitations and costs before deciding to franchise your business. The key considerations are that the business will still be profitable when a franchisee is restricted to a certain geographical region and that the franchisee will still be able to make a profit after they have paid you a royalty. That royalty is usually based upon what is termed “gross receivables” which is the franchisees turnover irrespective of whether or not that turnover has a proportion of bad debt. So before franchising a business, be sure it will work in a restricted region and with say 11% of turnover deducted as an additional cost. If there’s a good living to be had then there are franchisees out there for most businesses. Choosing the right mix of trading region and royalty is a big topic that franchise consultants spend a lot of time on, it is however perfectly possible that a franchise has no trading region and no royalty … that’s why you need to seek the opinions of a franchise consultant to guide your decision making process.
The right tools for the job
Alright, so with all of the above in place we’re getting somewhere now it’s time to nail down exactly what this franchise might cost and what it includes. Look closely at others in the franchise market place, not just direct competitors (if they exist) but also those franchises with similar characteristics. Note what the franchisor has provided to the franchisee, the training and inventory offered including human time to train and support the franchisee and then discuss with a franchise consultant on all of the other required elements so that you can get your calculator out to work out what it costs to launch the franchise location. With that in mind you can decide on a franchise fee including a margin for you to cover marketing expenses and potentially a franchise consultants fees to manage the recruitment process.
As you might expect your relationship with your franchisees will be governed by a Franchise Agreement and it’s essential that you have one ready for when you actually start franchising a business. Most lawyers have franchise experience but don’t be tempted to create this important document yourself or plagiarise an old one you find on the internet! Expect to pay anywhere between £2000 and £9000 depending on the firm you appoint and the complexity of the arrangement.
You’ll then need to give some thought to your own franchise marketing and the process of actually recruiting franchisees, but that’s a topic for another day and one that Lime Licensing Group will happily assist you with!