When would a business be ready to franchise?

When would a business be ready to franchise?

Franchising is big business, making a significant contribution to the UK economy. It’s the platform for many service businesses in a wide and varied range of market sectors, such as retail, food & beverage, repair & maintenance, health & fitness, domiciliary care, parcel delivery. In fact, the UK now has well in excess of 900 companies that operate by franchising. 

So, being a well-established distribution method, it’s not surprising that franchising features when ambitious business owners give thought to how they could expand. They are attracted by the fact it’s a highly cost-effective expansion strategy – franchisees pay to use your brand, know how, systems and support – and by the energetic drive that a network of self-motivated independent entrepreneurs representing the business can provide. But, whether franchising is, or could become, the right platform on which a business might effectively build will depend on several key requirements.  

As a franchise consultant that works with businesses to help create viable franchise models I thought it would be helpful to spell out what I consider those important requirements to be.  

Your business must be well proven

First and foremost, the business must be proven. Franchising is about replicating a business with a successful track record. It can’t be in start-up mode, or simply a brilliant idea (although starting a business with franchising in mind at the outset has it merits). The business must have a sound trading history, typically at least 3 years and showing consistent growth, with clearly defined and effective working methodologies, administration and marketing techniques. And, it must be financially robust.  

Could you train someone to operate the business as you do?  

 Will you be able to practically train an individual to operate the business in an identical way to how you operate the business? Setting clear boundaries within which franchisees will be required to operate is also necessary for achieving the consistency that’s vital to successful businesses So, training is a critical component of a franchise; the scope and style of how you pass on know-how about the business will have a strong influence over the performance of franchisees.  

Is the business systemised?

A franchised business needs clearly defined processes and procedures that can be adopted by a franchisee. Franchisees are buying ‘know how’ and will expect that you’ve packaged that ‘know how’ into easy-to-use systems. The processes and procedures for every aspect of how the business works must be documented in an Operations manual to ensure that franchisees all apply consistent business management methods. Also, key processes should be automated using software you provide access rights to – crucially, to give you visibility over the activity of franchisees.  

Is the intellectual property protected? 

It’s an accepted principle that if you don’t own something then you can’t sell or loan it. In franchising terms, if you don’t own the intellectual property that underpins your business – trademark, copyright, patents – then technically you’re not able to grant rights to another party to use it. The most notable item of IP is your trading name and style – these assets must be protected by a trademark registration. Patents must be securely owned, your web domain securely registered and you should copyright marketing materials. 

Customer demand must be sustainable 

Demand from customers for your product or service should at least be stable, ideally growing, but it must certainly be sustainable. Are there any significant issues that might adversely change the pattern of demand in the future? Such issues may be of a technological, regulatory or cultural nature. If this is a likelihood, and you don’t have a way of overcoming the impact, in my role as a franchise consultant I would advise that franchising may not therefore be an appropriate strategy. 

Have you developed effective marketing techniques? 

In my experience, every prospective franchisee will ask the question “how will you help me get customers?” You need a good answer. They will expect you to have identified the effective marketing techniques that could confidentially be expected to enable franchisees to generate business to a viable level within the footprint of the franchise territory, in a reasonable timescale.  

Is there a culture of trust in your business?. 

Trust is implicit in a franchisor:franchisee relationship. Franchising involves delegating the responsibility for the local stewardship of your business to someone who would have made a significant personal and financial investment to benefit from the rewards that are potentially available. They will make the day-to-day decisions, within the parameters that you set out. You therefore must trust that they will follow the procedures explained during the training and set out in your operations manual.  

Is your business profitable: Quite obviously, the business must enable both parties to make money. You will need to show that within a reasonable timescale the business could generate the level of earnings needed to satisfy the type of person you want as a franchisee. And, that it would provide a satisfactory return on the required investment. Franchising must also make financial sense for your business. You, or your franchise consultant, must carefully work out the costs to recruit, train and support franchisees so that the initial franchise fee and ongoing management service fees can be calculated with allowance for a decent profit to be made.  

A franchise network must be built on a base of verifiable information. The systems, resources and documentation need to be prepared very carefully to meet the specific needs of your business and be thoroughly validated by initially running pilot franchises. If this is done and all of the above requirements are met, or capable of being met, then it’s very likely that franchising could be a very successful business expansion strategy.