Every month we feature a blog by a BEC member. This month we are delighted to feature Kathryn Orange, DIrector of the Future Ltd and BEC Founder/Director
How to franchise your business in short steps
There are obvious advantages to opening more than one business before you decided to franchise because it will allow you to review all the key aspects of the business such as types of customers, location, marketing channels to name just a few.
It also may help when attracting franchisees into your network and build your reference points and increase your credibility.
Franchising is about replicating your current successful and proven model so that others can step into the business and follow your ways of working through manuals, training and support structures.
7 of the most common reasons why businesses franchise
1.No need for increased (employed) staff. Instead your business is being developed by individuals who are known as franchisees and have invested in your brand (win / win) they are typically excellent business owners and you should expect to be challenged if you don’t offer value or support them.
2.No requirement for high levels of capital investment. To create a franchise business model you will of course incur costs but overall you will limit your liability as jointly you take risks with franchisees that pay you to be part of the network. Growth of the network can be managed to suit your investment budget.
3.A franchise network is different. Why because it’s made up of local entrepreneurs who have chosen to work with your brand, they understand their territory, motivated to be successful and follow the processes. Yes of course you could grow organically but you would have to invest in staffing upfront and from experience of both employed and self employed management I do believe the interests of employed manager are very different to that of owner-franchisees.
4.Fees paid by the franchisee. Once the franchisee has signed the franchise agreement they pay typically a franchise fee (usually includes set up costs, training etc) and ongoing management royalty fees (sometimes also called management service fees (MSF). These are collected either weekly or monthly and are between 5% – 10% of gross revenue.
5.A Franchise model allows you to retain control. It’s important to take time to create an effective operation manual. That way the business will be run inexactly the same way across the network and just the way you want it to be. As quality checks you may wish to undertake qualitative and quantitative checks to ensure the ways of working have not eroded or blended into something very different.
6.The success rate of franchisees is much higher. Once your business model is proven (i.e. profitable, route to market is clear, processes written etc) then the success rate is high. The banks are still lending in the UK between 50% – 70% of the franchise fee and operating costs. This is of because the industry is growing and the default rates on loans are low. So it’s a great place to be at the moment.
7.Your return on investment. A number of franchisors build a franchise as part of their future exit strategy. The value continues to grow and you retain all the rights to your brand, trademarks and goodwill created in the business. (Franchisees can also generate value for themselves by building value which can be realised at re-sale).
Franchising your business is an effective way to grow. It’s should be viewed as a win/win for franchisees and franchisor. It’s essential you continue to develop the model and offer support and guidance throughout to your network ongoing.
If you would like to know more please contact Kathryn Orange on 07540 700272 http://www.thefutureltd.co.uk