How to Start a New Business That Can Grow Into a Franchise

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Starting a Business

If youíre in the process of launching an independent start-up and want to build a franchise network, itís important you keep your goal in mind from the outset. In this article, we reveal how to start a new business with a view to turning it into a franchise.

Aspiring to become a future franchisor is a great way to approach starting a business. It shows youíre ambitious and savvy, keen to grow your brand and unafraid to relinquish control to investors.

In creating a franchise, youíll put a sizeable chunk of cash towards getting the business up and running, and making sure everything is in place ready for franchisees to join. Then, your partners will cover the costs of launching new branches and the training theyíll need to become qualified. Youíll even be able to use the money they pay you in royalties and other fees to continue growing the brand. If you get the formula right, franchising is a cost-effective way to expand your start-up.

It might be tempting to aim to get your franchise network set up as soon as possible - but donít try to cut corners. If youíre to build a robust, widely recognised brand with a solid reputation, youíll need to progress carefully in the initial stages and lay the foundations for long-term success.

20 steps to start a new business and turn it into a franchise

1. Plan for longevity - As we mentioned above, franchising is all about long-term expansion. Step one is to start a new business based around a concept that will stand the test of time. Avoid fads and trends at all costs.

2. Develop a clear brand philosophy - When you launch a business, you should have a solid understanding of your concept. Think about whatís important to you and how youíll make sure your values are reflected in the way you operate and the service you offer.

3. Make sure the business model is replicable - Running a franchise involves giving investors the tools to launch an identical version of your initial business unit. So, the success of the outlet shouldnít rely on your current location or personal know-how or experience. At this stage, you should start to work on your business plan, thinking about how franchisees will be able to duplicate your business in other regions.

Preparing a formal business plan for converting your company into a franchise company is a very enlightening exercise as it will help you crystallise your thinking. Once complete, use that document to raise the money you will surely need to have a fair chance at success. If you cannot raise the money, listen to what the marketplace is telling you. Not that you have a bad business, but that perhaps it is not ready for national expansion. - Kert Gennings, COO of Boardwalk Fresh Burgers and Fries

4. Make sure you can afford to create a franchise - There are more costs involved in developing a franchise than many people realise. Read up on the cost of franchising your own business to work out whether you have the ability to finance your venture. Donít forget, you can always approach banks for a business loan.

5. Make notes - When you set up your business - in other words, the first franchise unit - keep a record of any obstacles you encounter. You could use these notes to make alterations before recruiting franchisees, or to help them avoid the same pitfalls.

6. Get professional advice - You should always consult a legal expert when you start a new business. If youíre interested in running a franchise, you should talk to a specialist franchise lawyer. The best place to find one is the British Franchise Association (BFA).

I got a great franchise solicitor through the BFA, and I would definitely recommend getting a BFA-approved, very experienced franchise solicitor on board. - Rachel Ray, Founder of Bright and Beautiful

7. Write a franchise disclosure document (FDD) - Youíll need to give potential investors a certain amount of information about the business before they decide to invest - thatís where the FDD comes in. This document must be updated every year, but you should take the time to get it right before any franchisees join the business.

8. Create an operations manual - Your manual should be detailed enough to give future franchisees all the information they need to run a business under your brand. Before you get started, read our step-by-step guide for writing an effective franchise operations manual. Once youíre done, the document will form part of the franchise agreement pack.

9. Write a franchise agreement - Every time a new investor comes on board, theyíll sign a franchise contract to confirm theyíre willing to build a business under your regulations. Get your legal consultant to help you build this document.

You might allow things specific to a franchisee to be negotiated, like territory, credit or other items normally handled in an addendum. But to maintain a brand, all of your franchisees need to be signing the same agreement. - David Busker, franchise consultant in the FranChoice network

10. Create a profit forecast - A franchise must generate enough income to support both the franchisor and franchisees. Before you hire any investors, youíll need to create profit forecasts for future business units. A specialist franchise accountant will be able to work with you to develop these key documents. Then, youíll have the insight youíll need to reassure potential investors.

11. Set the initial franchise fee - When investors enter your business, theyíll make a lump payment in return for the initial materials and support you offer. Make sure the price you ask reflects the benefits you provide. For example, a franchise with a two-day, online training course might charge a lower franchise fee than one offering an extensive month-long coaching scheme.

12. Set royalties and marketing fees - You can either charge investors a set amount or a percentage of their profits. Remember, the fees you take should be representative of the extra services and support you provide.

13. Outline your perfect franchisee - Before you start recruiting franchisees, you should take the time to conjure up an image of your ideal investor. Obviously, youíll probably be looking for people with a great work ethic and brand commitment, but what are their values and characteristics?

14. Refine your recruitment strategy - Think about where youíll advertise your franchise opportunity. Sites like Point Franchise can promote your business and direct investors your way, and you could also attend franchise shows and exhibitions to network with potential franchisees.

Iíve tried to advertise and network outside of the Ďtraditionalí franchise pool (franchise shows, BFA, franchise websites) since a lot of people donít know what a franchise is; many people want to start a business but a lot need [the safety net of] low start up costs and a proven plan. - Rachel Ray, Bright and Beautiful founder

15. Develop a training programme - Make a list of all the knowledge and skills youíd like your franchisees to have. Then, work out how you can incorporate them into a coaching scheme. You may decide to run it yourself, or hire professionals to do the job for you.

16. Create introductory materials - Many franchises have an initial franchising pack, giving investors all the tools they need to get going. You could include marketing materials, branded uniforms and a batch of stock.

17. Keep franchisees happy - The first investors to enter your business will be risk-takers, as you wonít yet have a nationwide brand presence. Go out of your way to make sure theyíre happy; this should mean theyíll give good recommendations to future prospective franchisees.

18. Apply to join the BFA - There are no specific franchise laws, but the BFA acts as the sectorís regulatory body, so joining it could boost your reputation in the eyes of future investors and customers. To secure membership, you must operate ethically.

19. Welcome feedback - Your franchisees may work more closely with your customers than you do, so theyíll probably be able to offer constructive feedback. Listen and be prepared to act on it.

One of my business philosophies is that unless youíre continually open to feedback and new ideas you will stagnate. We are a contemporary 21st century franchise so I always say to franchisees if you have an idea, talk to us. - Rachel Ray, Bright and Beautiful founder

20. Keep improving and changing - You may be tempted to put your feet up once youíve successfully launched a franchise and recruited franchisees - but donít. Allow yourself time for celebration, and then continue developing your business. You should start a process of continual review and improvement, making alterations whenever necessary to keep your brand fresh.

More information

Find more useful resources on our Articles For Franchisors page.

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