Franchising a business
Franchising can be a great way to grow and develop a business, but it isn’t an easy option or a get rich quick scheme. Done well it takes investment, time, and planning.
Pam Gordon is an experienced Franchise Consultant and part of The Franchising Centre a team of franchising experts who provide a one stop shop for advice and support for all things franchising and for businesses at any stage of their franchise journey.
A business starting to explore whether they should franchise needs to consider many things, but these are the top 5:
Reason to franchise…why do you want to do it?
Does this business need a local presence to deliver its product or service if it doesn’t then franchise probably won’t be the right option and the investment could go into developing an online presence to drive business. But franchising can work for businesses from dog walking to care through to pizza if you need a local person, office, or store.
A franchise is a ‘business in box’, that a franchisee buys into and is trained and supported to replicate in another location. So, the original business needs to be a proven model to be able to package into a ‘business in a box’.
So ideally a good track record of trading so having gone through the start-up phase, so ideally at least two-year trading history in the ‘concept’ they want to franchise to have enough history and development of processes to build into a franchise model.
As with the trading history, the business has to be profitable other wise why would anyone copy a business that isn’t succeeding and isn’t making money. The level of profit is all relative to the investment and ‘type’ of business.
So, a lifestyle business that is low investment might give a small profit but it’s a good enough return for someone working from home, part-time around their family commitments. But if you are looking at fixed-site investment, so store fit-out then the business needs to give back much higher profit level returns to pay back the investment but also give greater returns for the upfront risk taken.
The franchisor’s original business has to have sufficient profit margins to be sustainable as a franchise as most franchisors will charge an upfront fee to join but also then on-going fees such as a management service fee or royalty either as a fixed monthly cost or a percentage of turnover.
This is where the ‘franchisor’ makes their return. The more they help a franchisee to grow their business the more return they also benefit from – so this is the core of the franchise model.
A business model, therefore, has to be able to sustain these fees being taken and also allow for the franchisee to make enough money. So incredibly low margin businesses may not fit a franchise model.
How easy is it to train someone to run the business? Franchising operates often by taking someone with no experience in your sector/industry and training and supporting them to run a copycat business. So, it can’t be too hard or too long to train someone to run it.
There are franchises that focus on people from particular backgrounds so electricians through to optometrist (Specsavers) so you can only operate the franchise with a qualification in place already.
But the majority of others are looking for skills sets that can be transferred into their sector – so people management, sales, team building for example and the franchisor ‘teaches’ them about the specific industry.
So, in looking at your own business to the franchise – how long does it take to induct someone and get them up to speed to be able to operate their own version of your business. In most franchises, it can be a few days and others over a few months, but longer than about 6 months before they can start to earn money and begin to pay back their investment it starts to be come harder to run or plan as a franchise model.
The only other exception is the franchisee might have management skills but have ‘employees’ who have the sector experience, so care businesses often operate like this with a franchisee and a Care Manager.
This can be an intangible one, but often it’s about the reasons why someone wants to franchise their business. As a franchisor you become a training and support business, so you have to be prepared to want to do that.
As a franchisor in time, you move away from the day to day running of your original business and the time spent with you and your team is training and supporting your franchisees as well as forward thinking and future planning. You have to keep your brand, systems, and processes ahead of the competition as its not just your business, but everyone of your franchisees that operates under your brand and ‘business in a box’.
So, starting to franchise with that attitude and way of thinking will make for a great franchise network – franchising works when both parties franchisee and franchisor understand the expectations but work together so everyone benefits.
For a free consultation about whether your business might work as a franchise do get in touch.