How to Franchise a Business

FACTS

The 2009 NatWest/bfa Franchise Survey reveals that franchising - currently a £11.4 billion industry in the UK - continues to expand in terms of franchise systems, units and employment. A total of 838 franchise systems have been identified, with 34,600 individual franchisee businesses, employing 467,000 people.

WHY EXPAND THROUGH FRANCHISING?

The franchisor selects the franchisees and retains control over his products and services. Since franchisees invest their own money and work for their own profit they are likely to be highly motivated to succeed. Centralised costs and overheads are usually lower for a franchise network than for a network of company-owned outlets - few skilled staff can manage the entire network from a single central office.

There are several steps which potential franchisors should take:

• The bfa can provide introductions to their accredited consultants, solicitors and accountants, to help you meet bfa ethical franchising standards and help you identify if your business is suitable to franchise.
• The bfa can provide introductions to their accredited consultants, solicitors and accountants, to help you meet bfa ethical franchising standards and help you identify if your business is suitable to franchise.
• Research the market to ensure that products and services are competitive and distinctive enough to be franchised and that customer demand is sufficiently widespread.
• Produce a Business Plan outlining proposals in full and including a detailed SWOT analysis.
• Protect all property rights by registering trademarks, trade names and patents with the relevant trademark and patent offices.
• Test the franchise in the form of a pilot operation lasting at least 12 months - ideally longer if the business is in any way seasonal. The pilot scheme should be undertaken at more than one location, to test the concept in different geographical areas. A comprehensive pilot operation will ensure the right strategy, highlight problem areas, and enable the franchisor to finalise the package before committing to developing a network.
• With the pilot operation running successfully, the franchisor can prepare and launch his network. At this stage, the franchisor should instruct an experienced solicitor to draw up a comprehensive franchise contract setting out the obligations of each party - including how the fees, mark-ups on supplies and any other payments from the franchisee are to be calculated. These obligations should be made clear at the outset of any agreement with a franchisee.
• Produce a prospectus to attract suitable franchisees, and to determine the criteria for the franchisee selection.
• Produce a comprehensive operations manual and training programme for franchisees, to set sustainable standards of customer service.
• Establish a central management function and possibly field support staff to support the franchise network, and set up a system to monitor the performance of franchisees.
• Finally, develop a marketing, sales and advertising strategy to promote the franchise network, especially when competing with rival companies that potential customers are fully aware of the services on offer.

The franchisor will need to commit substantial amounts of time and money before the income stream begins. This will be for investments for market research studies, pilot schemes and promotional material explaining the benefits of the franchise to potential franchisees. It will also cover the selection and training of franchisees, the production of an operations manual, the formation of a central management team, initial stock and equipment, the launch of the franchise network and advertising costs.

Once the network is up and running, the franchisor and the central management team need to constantly monitor the performance of the outlets, to ensure that quality levels are maintained and to identify and assist any franchisees who are in difficulties. A franchisor's on-going commitment, through training, product development and other support, is vital to the success of the franchise network.

For further bfa information or a copy of the bfa Franchisor's Guide, contact the bfa on tel: 01235 820 470, email the bfa's Marketing department.

-ENDS-

NOTES TO EDITORS

Business Format Franchising is the granting of permission by one person (the franchisor) to another (the franchisee), entitling the franchisee to trade under the trade mark/trade name of the franchisor.