Are you interested in expanding your independent business? Perhaps you’ve thought about using the franchise model for some time but aren’t quite sure how to start the process. In this article, we look at the seven steps you need to take in order to franchise your business.
Becoming a franchisor is a big step. Let’s run through the key steps involved in turning your independent business into a franchise. Bear in mind that this isn’t an exhaustive list, but it should give you a better understanding of how to get the process of franchising your small business started.
What is franchising?
First things first; what exactly is franchising and how does the franchise model work? In a franchise agreement, a business owner (the franchisor) grants an entrepreneur (the franchisee) the right to run a business under their brand’s trade name, using its business model, strategies and products.
In return for a franchise fee, start-up fee and ongoing royalty fees, the franchisee gains brand recognition, a tried and tested product or service, the chance to join a training programme and ongoing business support. But every franchise is different; some offer extra benefits, such as nationwide marketing activity and the opportunity to attend international franchise conferences.
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7 steps you must take to franchise your business
So, how do you turn your business into a franchise? Here are the seven key steps you should take:
1. Make sure that your business is ‘franchiseable’
While ‘franchiseable’ may sound like a made-up word, this first step is vital if you want to be a successful franchisor. Some businesses are more suited to the franchise model than others, and there are some basic standards that must be met. Your business needs to be credible and teachable, have a unique selling point and provide an adequate return on investment.
The British Franchise Association (BFA) is a great reference point if you want to find out how well your business could be adapted into a franchise. The BFA says that an organisation must have a defined and proven method of trading for it to become a ‘business format franchise’.
To be sure your business has the potential to see long-term success, you should also put your model to the test for at least a year. Evaluate each activity, result and challenge until you’re confident it would fare well as a franchise.
2. Develop a business strategy
Once you know how you’ll need to adapt your business to fit the franchise model, you can start fleshing out your strategies. Work out how you’d like it to work and how you’ll enforce your operating standards.
Also, set goals and think about how you’d like your enterprise to grow. Ask yourself, for example, do you want to expand on a national – or even international – level? How many employees and outlets would you like? The answers to key questions like these will form the basis for your franchise business plan, allowing you to expand with a greater likelihood of achieving your objectives.
3. Refer to the BFA
We’ve already mentioned the BFA, but it’s an incredibly useful resource and it’s worth referring to its Franchising Code of Ethics when setting up your franchise. This code is a guide to the rights and obligations of the franchisor and franchisee. As there are no laws governing the franchise sector, the BFA acts as its regulator, offering useful statistics and advice to help get franchisors and franchisees onto the right path.
You may also want to become a member of the BFA. This will let potential candidates know that you are credible and willing to conform to industry standards that have been developed and protected over the last 30 years. Once you are BFA-accredited, you’ll also be listed on the BFA website and get support from the BFA central office. Other benefits of BFA membership include discounted exhibition space at BFA exhibitions and eligibility for the BFA’s Franchisor of the Year Awards.
4. Seek specialist advice
Starting a franchise is a complex process, so it's a good idea to get legal advice from a specialist franchise solicitor. The BFA has a list of affiliated legal advisors if you need help finding one.
They will be able to draw up a franchise contract, covering fees, territories, training and support, as well as the length of the contract term and any exit restrictions. This stage is important, as the franchise agreement outlines the roles, responsibilities and obligations of all parties involved in the franchise – so you want to get it right. A specialist advisor will also be able to answer any questions you may have.
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5. Decide on your fee structure
As the franchisor, you can charge an initial fee to cover the cost of setting up a franchise unit and providing franchisee training. This can be followed by an ongoing fee, known as royalties, which can be calculated in two different ways:
- The percentage fee – The franchisee pays a percentage of their revenue to the franchisor. By choosing this method, you'll receive more income when your franchisee does well. As a result, you’ll feel motivated to provide more ongoing support, which will benefit the whole business in the long run. According to the BFA, average ongoing fees are charged at 12 percent of the unit’s sales.
- The fixed fee – The franchisee pays a set amount of money every month. With this structure, your income won’t decrease if your franchisee’s profitability falls, so you can plan ahead, knowing how much money you’ll receive in the future. However, this structure can be risky for franchisees; if their franchise becomes less profitable, they may struggle to pay the fee. On the other hand, if the franchise unit does better than expected, the franchisor may end up wishing they had set a higher fee. So, if you choose the fixed fee option, make sure you strike the right balance.
6. Recruit and train franchisees
The recruitment process starts from the moment a potential franchisee expresses an interest in the business and continues until all training is completed. As a franchisor, you should demonstrate how you want your business to be run from the get-go, and having a structured selection process gives applicants a positive first impression.
Before kicking off any recruitment activity, develop an idea of the type of person you want to represent your brand. Consider not only their skills and experience, but their personality too. In fact, character and work ethic are often the most important factors, as you’ll provide training to give candidates the hard skills to run their franchise unit.
Of course, your business may require specialist knowledge that can’t be imparted in a brief training programme. If this is the case, make it clear on the application form. But you should dedicate time to thinking about who the best fit for the business will be. Are you looking for someone with an outgoing and friendly attitude? Or is it more important they are quietly conscientious?
Once your chosen franchisees are on board, you’ll need to train them. No matter how much industry or managerial experience they have, they won’t be accustomed to your business’ practices and values. Providing franchisees with a good level of initial and ongoing support will maximise the success of the franchise unit and increase the profitability of the business as a whole.
7. Market the franchise
Now that you’ve built your franchise business, tested the concept, developed a franchise agreement and selected your franchisees, it’s time to promote it. Most franchisors will want to start building brand awareness and forming a pool of loyal customers as soon as possible.
This means setting up a brand-wide marketing campaign. While this will attract potential customers, it should also bring in new franchisees. Providing national – or even international – advertising activity gives franchisees the confidence that they’ll benefit from a good level of brand recognition without lifting a finger.
Once you’ve worked out how you’ll organise your marketing activity in the long term, you may want to set a marketing fee. Like royalties, these can be taken as a fixed fee or percentage of revenue, but usually they’re set at less than five percent of a franchisee’s total income.
Turn your business into a franchise
There you have it, the seven key steps to franchise your business. Hopefully, you’ll feel more confident about starting your new venture now, but if you want to learn more about running a franchise, we’ve got plenty of resources for you. Click here to read our selection of articles for franchisors.
Alice Tuffery, Point Franchise ©