Finding success through franchising
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Jim McAuley, Regional Director, Yorkshire & North East, Royal Bank of Scotland |
Jim McAuley, Regional Director, Royal Bank of Scotland, offers practical guidance on turning your business into a franchise. Q: I’m looking to turn my business into a franchise. What do I need to consider in order to achieve this? Business format franchising is the granting of a licence by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade as their own business under the brand of the franchisor, following a proven business model. The franchisee also receives a package, comprising all the elements necessary to establish a previously untrained person in the business and to run it with continual assistance on a predetermined basis (including a predetermined agreement length – with renewal options). Franchising can not only strengthen the brand and reach of a company, but it can also act as a very good method of securing its future, but only if done well. Here are some suggestions on what you need to consider: • Put together a business and franchise feasibility plan which should clarify what you want to achieve and how you intend to go about it. It should cover finances as well as your long-term objectives for growth and future development. • Create an ‘operations manual’. You must provide your franchisee with detailed instructions on how to run their business, in accordance with your own business model. This brings together all the knowledge and experience that you and your staff have built up during the life of your business. • Prepare your finances. As well as the cost of • Setting up a pilot operation. Before you commit to a long-term franchise strategy, test the initiative by setting up at least one pilot site or outlet. This will help you decide whether franchising is right for you. • The legal agreement between you and your franchisee to protect your business. You need a contract to define the relationship between you and your franchisees. This should be prepared by a specialist franchise lawyer, preferably one that is a member of the British Franchise Association. • Choosing and managing your franchisees. Your choice of franchisee is critical, particularly in the early stages of a franchise system. They can determine whether you succeed or fail. Decide on the skills they should have and create a profile detailing the necessary experience and qualifications. • Finding franchisees. There are a number of ways to find the right person or people for the job. If you are looking for specific skills, advertising in specialist magazines may be your best option. • Franchisee training. Your franchisees need to know how you want them to run their businesses and a training program will show them. The structure of this program and who runs it are up to you. • Franchisee investment costs. Your franchisees will pay an initial fee, which you will set, for the right to set up in business under your brand name and in a specific location. • Your return will come from ongoing fees, which should increase with franchisee performance. You will need to set these charges too, which may include management services fee or royalty, a contribution to your advertising budget, mark-up on goods supplied by you: and an administration fee for specific services provided. In most cases, a franchisee will also cover the cost of establishing the outlet or operating unit at the outset. • Franchise management and support staff. Franchisees are far more likely to succeed with support and guidance. A franchise management team can fulfill this role, as well as selecting the franchisees in the first place.
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