How to Become a Franchisor
Become a Franchisor? Hey why not? After 25 years helping companies to do just that, and doing it myself many times here’s the main things to mull over before you go ahead and become a franchisor.
Let’s start with why you should listen to me. My name is Andy Cheetham and I have advised around 70 UK franchisors, that’s 5% – 10% of the entire £15 billion industry, (depending on whose stats you read). After 25 years as a multi brand franchisor and advisor to many market leading franchising entrepreneurs you might want to read these next paragraphs carefully.
Now that you’ve thought it, you’re probably going to do it, because franchising is a bed of roses according to what many will tell you. The truth is it can be, but the truth also is that it might not be. I’d like to start by suggesting that the market figures you will read by what appears to be knowledgeable people or organisations e.g. some banks / trade associations / consultants / websites etc need to be taken with a very large pinch of salt. In fact a bucket full of salt. The reason for this is that the underlying data is not an accurate representation of the entire industry and so if you are going to become a franchisor you must not rely on market statistics or surveys to influence you too much.
Before you franchise a business.
Next thing to consider before you launch a franchise and become a franchisor is who owns what. Do you own your brand name, trademark, domains, products, etc. It’s not essential but it’s preferable. Some brand names can’t be protected because they are too generic. If you’re generic then you may just have to crack on without a trademark in place. Protect what you can and register in the correct places, and own everything that your brand might rely on going forward.
When you franchise a business.
Don’t listen to those who say you’ve got to run a test franchise for 12 months. It’s total rubbish and you don’t have to. If you can look a potential franchisee in the eye and tell them with some certainty what will happen to them then you’re more than half way there. Of course it’s important that they possess the right attitude, work rate, funding and ability to follow instructions. You should know your business well enough by now to know when a potential test franchise is complete. Consider it’s seasonality, how much previous or sector experience matters, and how easy it is generally for a novice to clone it.
The Fees applicable
Your current margin won’t be the margin a franchisee makes because they have extra costs and usually less inventory, human assistance, experience and knowledge. Can a franchisee working a certain market channel still afford to pay you a royalty? Your current margin won’t be the same for them. What do you realistically need to charge at the outset to cover your initial training expenses and also those on an going basis. Cost out the inventory that a new franchisee will need, and then you’re getting somewhere close. You will read that “franchisors shouldn’t make a margin on the franchise fee”, and it is true that there is probably less fat in the deal for you once everyone has been trained. However I would say you have to have a margin to fund further network expansion.
You might already be working nationally. If you are planning to become a franchisor then you need to check that whatever geographical or market sector restrictions apply to your new franchisee will still allow them to make a profit. In many ways area exclusivity and/or market sector exclusivity are ways that you will restrict a franchisees income. Exclusivity is a huge topic to get right so don’t rush this decision. If you’re too generous it’ll cost you market share as a sleepy franchisee won’t cover the area or sector properly. You’ll also give competitors an easier opportunity to compete directly with you. If you’re too stingy then the franchisee will struggle.
Remember you’re dealing with inexperienced people a lot of the time, not always, but often. Can the individual waving a £20,000 cheque in front of you be trained effectively? On an ongoing basis they will also suck up management time. You need to be sure that you are choosy who you recruit or you’ll have problems down the road.
Are you really ready?
Next, whereabouts are you as a business? I don’t mean geographically (although it can help to be conveniently located). What I mean is are you making a consistent profit yourself? If your business is a financial struggle to keep afloat you need to address that problem first. Get your business format working well, making money and on a firm footing, then can start!
Professional advice matters, so before you become a franchisor have a chat with me and I won’t charge you to explore it. Franchising is a business within a business so take your time and seek advice because knowledge is power!
Further research can be on this franchise directory which is worth a look