Understanding Franchising

Franchising is a method that businesses can use to expand their brand, and we have put together a guide to franchising to explain key areas of this. When you strip away all of the detail franchising comes down to the following core elements:

  • The inherent deal in franchising: Copying what the brand owner already knows. A brand owner “franchisor” has created a business using their brand name and systems and in exchange for an initial and ongoing monetary payment, they will teach someone else to copy it in a different location. That “somebody else’ would then be termed as the “franchisee” and when they copy the business in a new location they would be termed as operating a “franchise”.
  • Money. Or franchise fees as they are termed. These fall into a few main groups. An initial franchise fee covers the setting up and training of the franchisee and maybe a profit element on the initial franchisee fee for the franchisor. The new franchisee will have other costs to account for. For example, if you are setting up a restaurant you will need premises, and a sum to pay for the fit-out of the premises as well as some working capital to tide you over until such time as the new business is supporting the owner. This is why you may often see a franchisee fee of say £20,000 and a total investment of £40,000. Once the franchise is launched the franchisor, in exchange for the ongoing support and all the things that are done centrally receives a share of the franchisees revenue in the form of a royalty. This can be a percentage of total sales or a fixed fee. It is usual too that a contribution towards national marketing is also made by the franchisee to the franchisor, usually around 1.5% or a fixed fee. Learn how our franchise consultants can offer guidance on the financial aspects, and all other areas of franchising, here.
  • An already successful business model. The key word here is “already” that is the most important point. All potential franchisors must be able to demonstrate that their business model is already profitable. Without that, a new inexperienced franchisee won’t have much of a chance if the experienced franchisor isn’t already making a profit. Particularly given that they will also be paying a royalty.
  • Nothing lasts forever. A franchisee will be given a contractual right to trade with the brand name for a certain period of time. Maybe somewhere between 5 and 10 years. During that period both parties are contractually bound to do certain things. The Franchisor will have to be available to train and support the franchisee as well as to continually be available for guidance and training. The franchisee commits to operating the business within the rules set out by the franchisor. Those rules might include restrictions on where the franchisee can geographically trade. They might also contain restrictions on which type of client a franchisee can deal with. Either way, a franchisee will lapse after a certain length of time and at that point, both parties can go their separate ways or renew the agreement for a further term.
  • It’s more or less the same as any other business just slightly different. Franchising is a partnership with an experienced business owner who will coach and support the new franchisee. However, the new franchisee still needs business acumen and still needs the drive and skill-set for whatever franchise they are joining. The franchisor can provide the know-how and certain resources but the franchisee, just like any other business owner needs to make it work.
  • Case study. Our own company Lime Licensing Group was founded by Andy Cheetham who is based in North Yorkshire. As a management consultant, Andy could only carry out so much work before being oversubscribed. So, in the same way, that Limes clients are taught to expand through the franchise model, Lime has done the same. Two regional offices have been set up under franchise models, one being in Cardiff and the other being in Cambridgeshire which gives Lime a presence in the South West, the South East and the North of England. Two further offices are planned for Ireland and Scotland before the end of 2020. This is a slow burn example which suits Lime’s particular situation. However, another company may be able to grow far quicker appointing 10 franchises in the first year, or more. Limes best ever client grew to 100+ in 18 months!

No matter what the business the principles of great franchising apply to all businesses and all sectors.

We hope you found our guide to franchising useful, however, if you require any more information, or wish to discuss our services, please don’t hesitate to contact a member of our expert team.