Wanting to Expand but don’t know how: Considering how to Franchise your Business
How it begins:
You start your own business; it may initially be for you but in time you might think about how you might grow – a natural option would be a new location. This starts a journey towards growth. So you might hire someone in the new area. But, after all of your hard work building your brand, money, time resources, making your product or service unique, can you really entrust your business reputation into the hands of an employee who might start doing things that are not in line with your original vision; next might come bad reviews, customer service issues, considerable management time overseeing your new location to get them back into line with your original blueprint. So in reality, you don’t grow. Instead, how are you going to grow without these potential issues in the way?
There is one word that alleviates all of these problems: franchising.
If you set up a franchise model; your new franchisee will start up their business in their own location, running it the way that you want them to. In addition, you don’t have the liability you would if you had set it up directly; someone else does; and someone else with a truly vested interest in its’, and therefore your, success. As a result, they care about your business as much as you do.
Franchising is basically a licensing relationship; a permission – you grant permission for someone else to operate a business just like your own, under your brand and using your previously tried-and-tested methods.
Why this is so good is that you open in a new location, with all of the enthusiasm that you would expect, without incurring any liability at all. Your licensee or franchisee will take their own lease, if a retail operation, will hire staff, buy their stock or equipment and deal with all regulatory requirements needed to set up. You just make sure that they do it right. But you don’t want to give your brand to someone else, we hear you say! But in a second, third, fourth location, compared with hiring a manager or an employee with no vested interest, a franchisee will ensure they treat the business as their own – because it is their own!
They will then pay you, via the ongoing licence fees under your franchise agreement, together with, usually, an advertising contribution. They will be required to undertake some local advertising, but their wider advertising will be supported, from the advertising contribution to you; somewhere between 1-2% of their revenues, to support this wider or national advertising of the brand. So now you are building your brand, with someone else’s money; free advertising and brand recognition, for what remains your brand, as a result of your franchisees as they develop their business.
Expanding via franchising will also ensure that a new site can be run by people from the new area; importantly with local knowledge in that market. To expand directly, acquiring this knowledge in each new location would either take a considerable amount of time or be impossible; but this is essential if you are going to create competitive advantage against the pre-existing local competition.
As business develops, there will be new ideas; rather than people competing with you, these new ideas, if the franchisor decides they fit with the brand and offering, will belong to you. If successful, you might well roll it out across your whole franchise network, benefitting everyone in the process.
You may be thinking, anyone can start a business like this on their own, so why would someone buy your franchise? The answer is risk. Start-ups, the statistics suggest, only have around a 25% chance of survival, after 5 years. The truth is that a franchise is significantly more likely to be a success – after all, the mistakes have probably already been made as the franchisor in creating their original business.
Consider, are you an expert in every area needed to run the business? Well, no! Areas such as websites, social media, marketing, branding, trademarks, management, HR, employees, accounting, IT, software, systems, processes – the list goes on!
With a franchise, instead the franchisee buys into a business that has been proven, with the back-up of the franchisor to help them or provide additional training or guidance as they grow.
In addition, the franchisor can support innovation, perhaps with buying power allowing all franchisees to benefit from a new idea or allowing all of the franchisees to exploit an innovation, keeping the brand at the forefront, and competitive within, the market.
So where next?
So what does it take? Is your business franchisable?
- Would what you do work in another location?
- Can you teach someone else to do it?
- Can your existing business run without you?
- Would it work in all locations? Considering location or where there might only be a limited group of users.
- Is a particular qualification or skill that would be hard to find, necessary?
- How extensive would the set-up costs be? If retail, it’s going to be more, with lease and fit-out costs but the presence on the high-street might ensure faster success.
- Are the owners prepared to become the owner of a franchise business; unless you hire a franchise team to run your network, in reality, your future business will be your franchise, not whatever it was that you had been doing – this is the one key thing that people don’t realise – it matters!
Some key elements/steps to consider:
- Business background – proof that the idea actually works
- Registering Trademarks – protecting the brand
- Operations Manual – a complete copy of your franchise system
- Franchise Agreement – the legal protection for both parties
The real key to all this is number 3. above; can this business run without you? You need to start thinking about the processes within your business. What steps take place from start to finish; and then document them; therefore starting to build your franchise operations manual/franchise system.
If you want to learn more, we are launching a series of franchising your business workshops between now and the end of 2018: details are available on Eventbrite in various locations – find out more.
Richard James heads the franchising practice at Solicitors Title LLP; a leading franchise firm, recognised in the 2016 and 2017 editions of Legal 500 and with experience in national and international franchising. We recently helped establish the first Health & Safety franchise in the UK. Why not contact us to attend an event or to discuss your business plans – all initial discussions are without any cost or obligation, so make the call!