How to get franchising right

A franchise is a logical choice for someone who aspires to own a company but wants the safety net of a trusted business model.

A franchise is a logical choice for someone who aspires to own a company but wants the safety net of a trusted business model.

Taking on a franchise is a logical choice for someone who aspires to own a company but wants the safety net of a tried and tested business model.

Nick Taimitarha, director of the Richmond branch of online business and lifestyle directory Thebestof, had always wanted to try something entrepreneurial. ‘It was a bit daunting as I hadn’t run a business before, so the idea of franchising appealed to me because there is a lot of support and a model to follow,’ he says.

It’s a mistake to think that a franchise is a guaranteed cash cow. Taimitarha had a small amount of his own money to invest in the initial franchise and managed for the first few months until it grew enough to start replacing his income. ‘You will often need an upfront investment as well as having to support yourself for a while,’ he says.

It’s not a good option for free spirits, either. ‘The whole point of buying a franchise is that you go by the rules. The successful franchisees are those who stick to what’s been shown to work rather than cutting corners because they think they know better.’

Franchising – Recipe for success

Putting your own flavour on Subway, for instance, is strictly off-limits. Daniel Simons opened a branch of the sandwich giant in Lancashire and found that contracts dictate the lease of specific, expensive equipment as well as more obvious items such as the menus.

However, franchisees can still find ways to save money without breaking the rules. ‘The franchisor will recommend a certain company to service the PC, but I might find it too expensive and take it to the local shop,’ says Simons. ‘I have reduced a lot of my costs by sourcing some of my own suppliers rather than going with the ones suggested.’

Car club Ecurie25 has an unusual franchise model, but one that has spawned four branches. Paul Brown took on the Yorkshire outlet and quickly assumed a hands-on role with the franchisor. ‘When I started, the franchisor and I had an agreement that we would become part of a steering committee for the franchising of the business.’

Brown expected to have 20 members by the end of the first year but hit 37. The plan now is to grow to 12 franchise outlets in the next two years. ‘Choose a franchise that you believe is right for you, but make sure the franchisor is someone you can get along with,’ says Brown. ‘That said, you have to think of it as your business and no-one else’s.’

Franchising: Why it could work for you

Many well-known brands have developed successful franchises, such as McDonalds. With over 800 networks in the UK, it has become a popular way to expand. Here are a few things to consider first:

  • Binding agreements – You will need a legal contract to establish what the trading obligations are between you and the franchisee. This will make it clear what both parties should expect from each other. It will also provide you with legal protection for the brand.
  • Initial investment – The funding for adapting your business into a franchise will vary depending on the complexity of the business model. For both legal and consultancy costs it could be anything from £10,000 to £500,000. A good first port of call is the British Franchise Association (BFA), which has a full list of affiliated solicitors and consultants. After this, it is the franchisee who will invest in the growth of the business, and will pay you a fee and percentage future of revenue.
  • A two-way process – Having grown your business from scratch it may be hard to let go of the reins, so think carefully about whether you are ready to loosen control. Ken Rostron, a consultant at The Franchise Company, says: ‘It’s a kind of partnership. You can’t be autocratic or unwilling to delegate. I’ve seen lots of people whose businesses would have translated well to a franchise, but were unable to take the final step because of these reasons. ‘The role of the franchiser should be to develop the brand on a national level, with the franchisee promoting the business at a local level. When this works it is quite a potent combination.’
  • Strength in numbers – Clive Houlson, licence owner of electrical installation company Mr. Electric and air conditioning and heating business Aire Serv, says there are considerable benefits once the model is up and running. He says: ‘Franchising can make your company strong as you’re sharing both the responsibility and the gain with the franchisees, together you’re helping to develop a brand which people will become aware of and trust.’

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