How to Franchise Your Business – The Steps to Take
A proven business model is at the centre of every profitable franchise, but you need more than this to be successful.
This section will guide you through:
- Franchising your business: first steps
- Setting up a pilot operation
- Choosing and managing your franchisees
- Finding the right professional advice
Franchising your business: first steps
Put together a business plan
A business plan 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.
The easiest way to do this is through an operations manual, posted on a private, password-protected intranet site for easy access.
This brings together all the knowledge and experience that you and your staff have built up during the life of your business and should be updated regularly.
Prepare your finances
As well as the cost of designing and developing your operations manual, your budget should also cover:
- Support structure.
- Legal fees.
- Pilot operation(s).
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.
A pilot operation should run for six months or a year if there is a seasonal element to your business. Any experience gained should be included in the operations manual.
The ongoing pilot
Changes in the marketplace will have an impact on your business and that of your franchisees. An ongoing pilot is an in-house operation that does exactly the same as the franchised business. It will enable you to:
- Gauge the effect any market changes will have on your franchise.
- Try out new ideas and monitor the results.
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. Prepared by a specialist franchise lawyer, it should take account of the following:
- The rights retained by the franchisor.
- The rights granted to the franchisee including the rights to use the franchisor’s trade mark/trade name/service mark/logo.
- The obligations of the franchisor and the franchisee.
- The terms of payment by the franchisee.
- The basis of renewal of the agreement.
- The period of the agreement which should be long enough for the franchisee to amortize his original investment.
- The franchisor’s right to adapt the franchise system to new or changed methods.
- Termination provisions including provisions for the surrender on termination of tangible and intangible property belonging to the franchisor.
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.
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. Otherwise you could try:
- Franchise exhibitions.
- National newspapers.
- The internet.
You will also need to produce a brochure outlining your franchise system and what you expect from your franchisees.
Your franchisees need to know how you want them to run their businesses and a training programme will show them. The structure of this programme and who runs it are up to you.
It may cover:
- Advice on supplying the product or service.
- Accounting systems.
- Staff training and recruitment.
Franchisee investment costs
Your franchisees will pay an initial fee for the right to set up in business under your brand name and in a specific location. You will need to set the amount, bearing in mind that this figure is not about making you profit.
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 service fee or royalty.
- Contribution to your advertising budget.
- Mark-up on goods supplied by you.
- 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.
The support staff role varies from business to business, but typically covers:
- Monitoring and reporting on franchisee performance.
- Carrying out credit control.
- Providing technical advice to franchisees.
Usually one member of support staff is required for every five to ten franchisees, depending on how complex your franchise system is.
Finding the right professional advice
Impartial, expert advice can keep your business on track. For a list of affiliated advisors, see the British Franchise Association – www.thebfa.org
Their specialist knowledge can bring a new perspective to your business, but choose someone with whom you can work comfortably. It may be worth paying more to get the right person.
Ask to see examples of work they have done before, including cases where they advised against franchising.
Your accountant will cover the financial aspects of your business. They can help with business plans and offer guidance to franchisees on what they could expect to achieve from a franchised outlet.
Talk to a solicitor for legal advice, including advice on the registration of your trade and service marks. By doing this you will maximise protection for you and your franchisees.
The Lloyds TSB Franchise Team has access to a comprehensive database of franchise systems in the UK and can offer advice on all aspects of franchising. Call them on 0800 681 6078, email firstname.lastname@example.org or write to: Lloyds TSB Franchise Team, 2nd Floor, Northgate House, Kingsway, Cardiff, CF10 4FD. Please remember we cannot guarantee the security of messages sent by email.
Our free publication, How to franchise your business, offers clear, unbiased guidance on whether franchising is the right route for you. If you want to take things further, our experienced advisors can help you construct a franchise package.
As your system develops, we can also discuss how to arrange the best types of finance for your franchisees.
This How to Franchise Your Business – The Steps to Take business advice article published in association with Lloyds TSB.
Whether you are looking to start-up a business account or want to move your existing business account Lloyds TSB can offer you all the Business Banking support you need
While all reasonable care has been taken to ensure that the information in this website is accurate, no liability is accepted by Lloyds TSB for any loss or damage caused to any person relying on any statement or omission in the content of this website. The content of this website is provided for information only and should not be relied on as offering advice for any set of circumstances and specific advice should always be sought in each instance