Franchising – Minefield Or Goldmine?


Franchising - Goldmine or Minefield?

Franchising can be a great way to grow your business using other people’s resources and capital.

It would be fair to say that most businesses could be franchised. If your business is proven, profitable and portable (can be taught and replicated) then you have ticked the first box. However it is essential that you make sure franchising is right for you and your business. It is a growth strategy, not a get rich quick scheme. Done properly it can provide an excellent platform to grow your business nationally and internationally.

What Is Franchising?

Franchising is essentially a “partnership model” between a “franchisor” (the business owner) and a “franchisee” – typically an individual who wants to have their own business supported by a larger business with a proven and successful business model, systems and processes.

The Franchisee pays you an initial investment for the licensed rights to operate under your brand. They receive training and ongoing support from you to help them launch, develop and grow their business. They would also expect to pay you a management services fee/royalty payment. This would normally be a percentage of their turnover but could also be a fixed monthly payment. In addition to this you may receive a monthly marketing levy which you would use to market and develop your brand nationally. Their business will be a “mini- me” version of yours and will typically operate within a defined and usually exclusive territory. The partnership is governed by a Franchise Agreement which protects your brand and provides all parties with clarity as to what is expected of them along with the rules for operating and selling the business.

Why Franchise?

There are a number of benefits to franchising your business. Although not exhaustive the following will give you some idea as to the benefits available;

Growth quicker and cheaper than “organic growth” – When you franchise your business you grow using the capital and resources of your franchisees. This enables you to grow without the capital burden required to take on multiple properties or employ staff.

Motivated people – There is nothing more motivating than knowing if you don’t make a success of your business you won’t earn any money. As Owner Managers your franchisees are more likely to go that extra mile, open that little bit longer and try that little bit harder that employed staff.

Brand development and consistency – A network of franchisees will help develop brand recognition throughout the UK or even internationally. Having a robust business model underpinned by detailed documented systems (known as your blueprint) supported by a professionally drawn up Franchise Agreement will ensure your franchisees deliver brand consistency throughout your network.

Less hassle – You are responsible for supporting and mentoring your franchisees. However they are responsible for their staff and the day to day business operations. This means that all the challenges that come with having staff are down to the franchisees to deal with and not you.

Increased buying power – As your business grows so does your need for materials/ supplies. This can give you greater buying power, drive down the cost of production and/or increase your profit margin.

The benefits of franchising are clear however. However franchising is not for everyone and not all businesses can be franchised successfully. It is a business journey that cannot be rushed. To execute this form of growth strategy takes time.

Top 10 Things To Consider Before Starting The Journey

  • Why am I doing this? – Ensure your motivation is business growth and not fixing a “sick” business. Be honest with yourself. Do you truly want to grow your business and are you prepared for the good the bad and the ugly that comes with it!
  • How long do I want to be in my business? – If you want out within the next couple of years franchising may not be the right way to go as it takes time to build your franchise network.
  • Is my business proven, profitable and sustainable? – Franchisees are looking to reduce the risk of start up. They are looking for a business that has learnt from its mistakes and is making money year on year. Franchisees are in it to make money and no-one wants to invest in a failing business.
  • Is there enough money in your business for you and your franchisees? – You make money from your franchisee paying you a monthly management/royalty payment. While you will also make money from franchise fees the model must be sustainable after all the territories have been sold and should not rely on franchisee fee income. There must be sufficient margin in your business for your franchisees to make a good income after he has paid you.
  • Investment in time and money – Franchising your business does mean a commitment in both time and capital. Even if you work with a franchise consultant who can remove a significant amount of the time burden you must still be sure that you have a clear understanding of what will be involved and have the capacity and resources available.
  • What is my hook? – After the honeymoon period is over i.e. your franchisee has been trained, launched their business and is trading successfully will they still see the value in the monthly payment they are making to you? Consider what support and franchise package you could offer – would you buy it?
  • Can my business be taught? – The most successful franchises are ones that have an excellent training and support program underpinned by clearly documented processes.
  • Is there a market nationally/internationally for my product/services? – Successful franchises are able to sell their products/services irrespective of geographies.
  • Do I want to change my business /role and do I enjoy helping people? – Franchisees are buying your expertise and help. It can be very rewarding but you need to enjoy helping people or have the funds available to bring in the skills to make it happen.
  • Is my business in good shape? – You may have heard sellers say that their house has never looked better than on the day they put it on the market. Franchising your business is similar. Before you ask people to invest in your business and replicate your systems it is essential that it is in the best possible shape.

 

In summary Franchising your business doesn’t have to be a minefield and there is opportunity for the goldmine – but do it right or don’t do it at all.