Franchising for Business Owners

What is franchising?

Many business owners have successfully expanded an existing business using the franchise model. In essence, business owners develop a network of highly motivated, self-funded individuals to manage the business in new market areas in return for a, often substantial, share of the profits.

But franchising is not for everyone.

According to the text books, franchising is 'a form of business organisation in which a company which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor's trade name and with the franchisor's advice and guidance, in exchange for a fee.'

So, five keys points to consider before franchising your business:

  1. You should already have a successful, profitable business and should be able to provide accounts and other information to demonstrate this.
  2. You should have a recognised trade name and logo. Ideally, this will be a registered trademark.
  3. You should be able to offer advice and guidance to help the franchisee set up and run their business. This may be offered through a written Franchise Operating Manual, formal initial training, ongoing training programmes, regular review meetings and informal get-togethers.
  4. You should develop a written legal agreement that outlines the obligations of both franchisor and franchisee and describes the actions to be taken in certain situations.
  5. In return, you will receive a fee from the franchisee. Typically, this consists of an Initial Fee, a Licence Fee and an ongoing Management Fee. The Initial Fee covers initial costs such as training and support. The Licence Fee covers the licence to operate under the trade name and in accordance with the Franchise Operating Manual for a defined period of time. The Management Fee covers the cost of ongoing training and support. Some franchises also have an Advertising Contribution (sometimes called a Marketing Levy), a contribution that all franchisees make to a central marketing fund. You will need to define a fee structure that provides an attractive return for the franchisee while allowing you to continue to invest in the ongoing development of the franchise brand.

Of course, most businesses do not have all of the above in place. An initial evaluation by a specialist franchise consultant will help you establish what needs to be done and put a plan in place to franchise your business.