How a franchise works – pros and cons, costs and how to set one up for your business

Franchise would possibly come throughout as an interesting possibility for your business as a result of it may be a cost-effective and fast means to develop.

But is it proper for you and your business? We’ve lined the whole lot you want to know on this useful information.

How does a franchise work?

The business proprietor (franchisor) creates the franchise and grants franchisees permission to use their established model (suppose Subway, Costa) and run their very own department of the business with the identical branding and merchandise/companies. The franchisee invests within the business, successfully ‘shopping for the rights’ to use firm’s identify, branding and product. Franchises can run on a premises or be home-based.

How to franchise your personal business  

Establish whether or not your business is franchiseable

The 4 questions try to be asking your self listed below are:

  • Can your business be simply replicated and transferred to totally different areas?
  • Can you educate any individual to do what you do inside a affordable timeframe?
  • Is your business worthwhile sufficient for a franchisee to have the ability to pay a month-to-month service administration price?
  • Is it an moral business?

Find a franchise guide

A franchise guide can run a feasibility check on your business to discover out whether or not you’re franchiseable.

Franchise consultants will then work with franchisors to assist them franchise their business. They can provide differing assist companies – corresponding to recruitment and mentoring assist, to assist be sure that their franchisors are profitable.

“It’s not really easy to know which bits you may educate any individual to do,” Pip Wilkins, chief government of the British Franchise Association (BFA), instructed Small Business. She added that throughout the feasibility check, the franchise guide will assess if there may be sufficient revenue within the business for a franchisee to have the ability to run this and pay the administration service price. The administration service price is generally a proportion of turnover. Anything from round about 10 per cent is the common.

The chemistry you may have with the franchise guide will play a half in your success. “You’ve received to have the ability to gel with this particular person, as a result of they’re going to work with you in a partnership method. It’s somebody that you simply would possibly go for a beer with. You need to discover any individual that matches, and really needs to perceive your business,” mentioned Wilkins.

The BFA web site accredits franchise consultants primarily based on how they’ve helped and supported different franchisors previously in addition to wanting on the documentation that they’d assess and put collectively for totally different franchise companies, plus references and testimonials of people who have used their companies.

Write your business plan

Even although the construction is totally different to an impartial, you continue to want a business plan, particularly if you’d like to increase exterior funding. It could also be up to you to information your franchisees’ business plans too. Your business plan ought to embody your growth technique together with all the primary particulars equipped in a non-business plan, plus the franchise price and the franchise bundle that will likely be used. It will want to be up to date at the least as soon as a 12 months as soon as it’s created.

Protect your model and mental property

Registering your trademark is prime to defending your mental property. It costs £170 to register a trademark in one class and £50 for every further class and can be done through the Government’s website.

Read extra at How to protect your intellectual property as a scale-up business.

Sort out your important paperwork

Get your operations handbook collectively. “That is the Bible to the business, the whole lot that you simply want to know on how to promote, how to market and how to do the funds [is in there],” mentioned Wilkins.  

Then set out the franchise settlement. The franchise settlement is the doc that protects the franchisors branded business system, and it clearly units out the rights and obligations of each events.

> See additionally: Top ten things you should know about the franchise agreement

Put collectively a assist bundle for franchisees

The assist of your franchisee(s) continues means after they begin their territory. You’ll be anticipated to be readily available to assist with on a regular basis queries because the franchisee’s business grows. “I get a lot assist by [the Razzamataz] head workplace,” mentioned Samantha Wingfield-Jones, franchisee of Razzamataz in Leighton Buzzard. “I used to be consistently emailing them and messaging and texting and discovering out a number of info to be sure that I used to be doing the whole lot accurately. They actually began from scratch with me, introducing me to the corporate in addition to what it meant to be a franchisee.”

Having the whole lot in place made life a lot simpler for Wingfield-Jones. “The web site is already there for you, the whole lot is already there for you. That’s one of the explanation why I needed to go down the franchisee route, slightly than setting up my very own business.” For Razzamataz, all of the uniform has to be the identical and the paperwork despatched out to the dad and mom are the identical, utilizing the identical e mail construction. The coaching course of lasts about a month, in accordance to Wingfield-Jones. It was two weeks of intensive course coaching and then varied conferences.

Make positive you understand how to assist your franchisees as they undergo the totally different phases of business. That might concerned assembly them in particular person, having contact particulars for devoted employees and hyperlinks to helpful articles with frequent questions from franchisees. It may assist to put them in contact with one another in order that the newer franchisees can study from the extra seasoned ones.

Get in contact with the British Franchise Association

When your model is prepared to franchise, take a look at becoming a member of the British Franchise Association. Once franchisors are on board and have gone by that accreditation course of, then the BFA will get franchisors collectively to share finest observe. “Despite the very fact they’re in very totally different sectors, and typically in competing companies, all franchisors have the identical kind of challenges: How do I recruit franchisees? How do I monitor them? How do I encourage them? What rewards programmes do I give? How do I actually assist them to achieve success?” mentioned Wilkins.

Find your franchisees

Your relationship with your franchisees is one of crucial parts of the business. Depending on your business, the screening course of is probably going to embody an info day, software kind, interview(s) and submitting monetary info. During the method, you must also be paying consideration to what sort of personalities work for the franchise you’re operating as these play as large a half within the franchise’s success because the franchisee’s abilities and coaching.

Advertise on your web site and social media channels. It’ll additionally helps to optimise your web optimization so that somebody who’s contemplating beginning a small business would possibly discover you and veer in the direction of turning into a franchisee as a substitute.

Don’t soar on and anticipate to tackle a great deal of franchisees. It’s sensible to tackle a small handful whilst you check out the efficacy of your franchise providing.

Take canine sitting and canine boarding service, Barking Mad, for instance.

It began to franchise again in 2001. The first 18-24 months have been spent operating the pilot business to confirm that it was viable, worthwhile, scalable and marketable. In 2016, Franchise Brands Plc, the multi-brand franchisor, purchased Barking Mad. It’s now persistently within the Elite Franchise Top 50 franchise business within the UK. “It’s an preliminary funding that pays off long-term – as your community grows, your saleable asset grows!” mentioned Rachel Stewart, managing director of Barking Mad.

Wilkins mentioned that the majority franchisors will solely take round about 5 folks on within the first 12 months, since you need to work with them to pilot, to check and to ensure that they’re profitable. And then you definitely’ll see most franchisors taking up perhaps a dozen franchisees yearly. “So not all people will likely be proper for each franchise business. It’s realizing what you need and what your splendid franchisee persona is. Everyone will say they need somebody that’s passionate, that’s systems-orientated, however is there a explicit ability set you need to see any individual carry – or are you able to educate them how to do it? Recruitment might be the most important problem for franchisors,” she added.

A franchisee contract will final between 5 and 20 years, relying on the business. To preserve a harmonious relationship, ensure that franchisees know the phrases and circumstances particular to your franchise earlier than they signal up. “Part of the contract that I signed, there was a bit that mentioned that I wouldn’t have the ability to open my very own college till X quantity of years after I left the business,” mentioned Wingfield-Jones.

Be clear as to what franchisee costs are. “Make positive that you understand precisely what you’re paying for,” Wingfield-Jones advises fellow franchisees. “So once they let you know the determine of how a lot regardless of the franchise is, how a lot particular person factor costs, what you’re paying for and in case you have to pay any further after that. You pay for the franchise and then you definitely discover out later that you simply want to pay for the uniforms on high of that.”

Marketing your franchise

Once you’ve established your self as a sturdy franchiseable business, it’s up to you to create a stable advertising and marketing plan to information your franchisees. This ought to be a part of your operations handbook. The plan might embody a model overview, a mission assertion, high quality management and operations. To assist the franchise’s advertising and marketing efforts, create branded backgrounds and templates in addition to inventory belongings and software program that they will use in their very own advertising and marketing.

>See additionally: The importance of design and branding in franchising

It additionally helps to have some knowhow in native web optimization, ppc (PPC) promoting and e mail advertising and marketing. If you’re unfamiliar with these, a digital advertising and marketing company will assist. You may also discover you need to rent a net designer for your web site to give it that skilled really feel.

How a lot does a franchise price?

As we’ve mentioned, a franchise guide is crucial. “A franchise guide can have a lifetime relationship with the franchisor to assist them within the varied phases of their growth,” mentioned Wilkins. How a lot you pay them will rely upon how a lot floor work you’ve been ready to lay your self. Wilkins mentioned it could price something between £10,000 and £50,000, relying on the dimensions of your business and how a lot work the guide has to do.

A typical franchise settlement will likely be something between £3,000 and £6,000.

“Getting the business prepared to begin off with, you’re in all probability taking a look at an funding of £25,000 as that is what you want to get your doc in place. However, in case you’ve received a lot of that already – systemised operations manuals and intakes – then your charges can be lowered,” mentioned Wilkins.

Why you must franchise a model

Franchising is a neater and faster route to rising your model. The complete means of franchising a business will fluctuate in size. “It will be accomplished in a few months. Some it should take a 12 months. It completely relies upon how a lot you’re doing your self and how a lot you’re paying a guide to do and how a lot useful resource you may have,” mentioned Wilkins. It’s fairly fast to set up territories when you’ve received the go foundations set. Wingfield-Jones had her first assembly with Razzamataz in January 2021, began coaching in February and opened in September that 12 months.

Investing in a franchise is a lower-risk technique for franchisees as they don’t have to begin from scratch. What’s extra, the failure fee is considerably decrease than it’s as an impartial start-up. In truth, the failure proportion has been sitting at lower than 5 per cent for over 20 years.   

You’ll get extra loyalty from a franchisee than an worker as they’re extra invested – actually and figuratively – in your business. “Over and over once more, I’d take franchising,” mentioned Wingfield-Jones. “If I’m going to open one other college, I’ll open one other Razzamataz, which I’m truly in talks of doing now. Even although I’d have the ability to open my very own college with all of the data that I’ve now from opening my very own franchise, it’s a lot simpler.”

Franchisees can even have the insider data on the world they need to open a territory in. “Their native experience helps them to develop their business in that territory much better than you might,” mentioned Stewart. “Franchisees may assist to contribute to the success of the model by coming up with new concepts and alternatives that you could be not have recognized or thought of.”

These companies are, for probably the most half, worthwhile. According to Franchise Direct, the UK franchise business has a internet value of £17.2bn and creates 710,000 jobs yearly. An enormous 93 per cent of franchise companies are worthwhile, with 60 per cent of these having a turnover of greater than £250,000.

Pitfalls of franchising a business

The biggest downfall is that your business merely won’t be appropriate for franchising. “If you’re operating one thing that may be very distinctive to a explicit city, say. A surf store would work rather well in Cornwall, however will it work within the metropolis of Leicester?” mentioned Wilkins.

It will not be appropriate inasmuch because it’s too pricey (by way of time and cash) for your business. “It’s not a answer for each model and is barely a appropriate route if your business is already profitable and up and operating,” mentioned Stewart. “There are excessive costs on the outset which is able to contain monetary funding corresponding to authorized recommendation for franchise agreements, inventive businesses for assist with advertising and marketing supplies and coaching corporations to assist develop your coaching programme. Recruitment of latest franchisees is essential, so that you want engaging recruitment methods and some good promoting abilities! It takes a lot of time and effort, so that you want to be motivated to do it.”

As you don’t essentially want {qualifications} to change into a franchisee, you might be coping with somebody who’s inexperienced in business, which means you may have to do a lot of hand-holding, notably within the early days. They can also be extra liable to making errors and probably dropping the corporate cash or damaging the franchise’s repute.

If you do resolve to go for it, be ready for your function to fully change when you go from business proprietor to franchisor. “Your job because the franchisor goes to be managing, recruiting, supporting and motivating teams of franchisees,” mentioned Wilkins.

The British Franchise Association has a free on-line course on franchising a business in addition to monthly education seminars.

Read extra

Expansion through franchising

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