Here’s 6 key considerations before franchising a business.
By Andy Cheetham, Managing Director, Lime Licensing Group
Be certain that a franchisee will have a solid commercial opportunity.
Currently you can sell your stuff where ever and to whoever you want to. Without inviting potential chaos you’re likely going to need some restrictions on your franchisees. So, ask yourself, could your business still be profitable if you confined your activities to a specific and new region? If that’s a Yes then it’s now time to consider how you profit from a typical franchise arrangement. You may be happy with a margin on product supplied to franchisees in which case you could have a royalty free model, if so then you need to consider how that affects the profitability of each franchisee when you don’t supply them at your current cost price? Otherwise you’ll probably need a royalty, what does that do to the franchisees bottom line? It is also normal that franchisees contribute to the overall brands marketing fund. So before franchising a business do a profit and loss allowing for these and now consider again if it’s a good franchise proposition for the franchisee.
Quantify your maximum liability when franchising a business.
In both £’s and pence. Once you are clear on the downside you’re thinking in the same way as a franchise investor would. Get comfortable with the investment required to get your franchise defined and setup correctly. You can not do this for a few grand. It simply can not be done thoroughly unless you invest properly in the process – the same way as you expect your franchisees to invest! So, allocate the capital and resources needed and commit to it fully and without reservation because dipping your toe in the water won’t achieve anything. Like all ventures launching a franchise of your own carries the risk of failing despite what the franchise industry statistics might tell you! Minimise that risk by only hiring advisors formerly accredited by the British Franchise Association as we are here at Lime.
Dont under estimate the time you’ll need to invest to teach the model to your new franchisees.
Some businesses can be taught and picked up pretty quickly. But you, as a new franchisor you will need sufficient elasticity within your team to be able to give whatever time is needed to your new franchisees. They will need your time to learn the system and find their feet. This may strain a small company even if they have a great franchise system. So consider who has that time and expertise to give, and be available to your franchisees. When any of our team help any client this is an area we encourage business owners to think about before franchising a business.
Don’t sell a franchise to someone you wouldn’t want to work with.
Many Franchisors have zero recruitment criteria and they can sell a lot of franchises. To a degree the money generated by that can solve all sorts of problems that arise from this policy. But, an unsuitable franchisee will likely always be unsuccessful. That then turns to resentment, and unsettling behaviour that can effect the rest of the network. Be patient, wait for those applicants that you’re happy with and say no to the rest. One great franchisee is far better than three drifters.
Can you create a partnership environment?
You and your franchisees are on the same team. Or at least you should be. Sure, you’ve got different roles but are you both really that different? Every franchisee is an integral part of your organisation just as your employed staff are. The minute you spot a “them and us” environment you know you’re failing at fostering that team mentality that makes such a huge difference to any organisation. Everyone helping each other, trusting each other and caring for the brand just as you do. Because the brand and the franchise model you created should be able to look after everyone. If everyone at HQ genuinely aims to support everyone, regardless of whether they are franchisees or employed staff, you’re fostering a great environment that yields greater royalties and more successful franchises owners. It’s not easy and this is one job that is never finished. Franchising a business needs the same strategy as a non franchised one!
Franchising a business isn’t an all or nothing choice.
Franchising does not have to shift your whole company direction. Many franchised brands grow organically in addition to issuing franchises. Some also enter into joint venture partnerships, distributorships, licensing, agency agreements, and wholesale arrangements alongside franchising. Get some free franchise advice today. We’ll help you to consider all your routes to market and where franchising might fit. You always have the option to travel down every path at the same time and not just the franchise route.
There’s a lot more for you to consider, and we’ll help you to explore how franchising could work for your model.