Plans to expand

Alan Wilkinson on franchising your business

More than ever companies are considering the way forward to be in franchising and it’s not difficult to see why.

While the UK economy as a whole grew by just 0.7 per cent in 2011, the franchise industry increased economic contribution by 8 per cent with turnover rising to £13.4 billion. In the same period, UK unemployment rose by 180,000, whilst the franchise industry created a further 73,000 jobs, and whilst non-franchised businesses continued to struggle, nine out of 10 franchise businesses reported a profit.

So what makes a good franchise? Firstly, you cannot franchise a concept or idea. The business must be proven to be successful in an established format, with a defined system. There should be a distinctive name and appearance and a good local reputation.

Then you must consider if your business is duplicable in sufficient different locations. If your business is selling sticks of rock in Blackpool, then it might work in Brighton, but will it in Leeds, Birmingham, or Reading?

If you have a business that will duplicate then consider if the model can be learned in a reasonable period of time by somebody with relevant skills and attitude, who you can trust to use your brand in their local area. Consider too the time commitment from yourself in training and supporting your franchisenetwork, and who will do what you do now in your business whilst you are busy becoming a franchisor to your network of franchisees.

An important factor is how profitable the business is, and perhaps, more importantly, what are the margins. You will be making your income as a proportion of your network’s turnover. If your business buys at £9 and sells for £10, it will be difficult to take a sufficiently high percentage of turnover as a management services fee, and still leave your franchise with sufficient profits to survive. If, however, you have good margin in your product or service, then the chances are you can take fees that work for both you and the franchisee.

Another important element to consider is if you and your organisation has, or can adapt to, a culture of mutual support and trust. Your franchisees will be the ambassadors of your brand, and you must support and guide them in the operation of their (and your) business.

Finally consider if the business has, or can develop, sufficiently attractive interdependence factors, or reasons to belong that would make someone want to purchase your franchise rather than go off and set up their own business in the same activity from scratch.

Having considered the above factors, if you conclude that your business matches these criteria, then it is likely that your business may well be franchiseable. You must now consider not if, but how you franchise your business.

For example, how should you structure your franchise offer? What should you charge as a franchise fee? How do you structure your fees? This is where you will need professional help. There are qualified franchise professionals such as lawyers, bankers and consultants who can work with you to help you to franchise your business the right way, avoiding the many potential pitfalls. The British Franchise Association (bfa) is also a useful source of information for prospective franchisors, and there are regular seminars and information days about becoming a franchisor.

If franchising is right for you and your business, it can be a way of expanding your business quickly and cost effectively. Franchisees are likely to be more committed and focused than employees, and by investing their funds into your franchise, you are in effect expanding your business using other people’s money. To find out more information on franchising or expanding your enterprise, visit the Growing Your Own Business seminars and panels held at the British Franchise Exhibition, 5 & 6 October at the NEC, Birmingham. See www.franchiseinfo.co.uk for details.

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