Franchising can be a great route to business expansion, but many fail to understand the pitfalls. Mike Teasdale explains how to assess if franchising is right for you.

Many see franchising as an easy route to expansion, but the reality can be very different.

Pros and Cons

It is true that franchising can be a quicker and more cost effective route to business expansion than say organic growth, securing new capital, or even mergers and acquisition. By using the capital injections of lots of franchisees a sizeable business can be established in a relatively short time, and the risk shared.

In addition, by harnessing the passion of franchisees who feel real ownership for the business – after all they have invested their own money – performance can reach a higher level than under a managed network.

However, many franchisors fail to realise that they will lose a degree of control over their business – the development of their ‘baby’ will be in the hands of others. While they will still have some control over this, it will be through a complex legal framework rather than direct management influence. Indeed, much of what they do will be within a structure of Franchise Agreements, Concept Manuals, Sub-leases etc

If new Franchisors go into this with their eyes open, this is not a problem, but for many the reality of running a Franchise Network is entirely different from their dream of simply running a larger version of their existing business.

What have I got to franchise?

Everyone believes that their own business is unique and that others would love the opportunity to run a version of it - in return for a healthy franchise fee.
The truth is that you really do have to have something unique to bring to the party. This could be intellectual property, a brand, a product, a source of supply or simply a method of operation.
Whatever it is, it must have value to the franchisee and give them a reason to invest in a franchise fee and ongoing royalties. The key question anyone will ask is ‘Can I do all of this under my own name without having to pay a Franchisor?’Protecting this unique proposition is a key part of the legal framework.

Is the model profitable?

Franchising is a relatively simple business model. Normally the franchisee will pay an initial ‘joining’ fee, together with some form of ongoing royalty. Products, services and materials may be supplied, and property may be involved
Whatever the model, it is vital that it is profitable for both the franchisor and franchisees. There is little point franchisors charging such a high royalty that the franchise makes a loss and goes out of business.
Most franchisees would expect to see that the model has already been ‘piloted’ to prove the concept.

Who is my ideal franchisee?

The issue of franchise recruitment is often underestimated. Mistakes here can lead to trouble later when you find yourself dealing with “the problem” in the courts just because someone loves your concept doesn’t mean they are the right person to join your network. Treat franchise recruitment the same as you would any other key position in your business – write down the kind of skills, experience, aptitudes required. These factors are at least as important as their ability to finance the venture.

Similarly, thought needs to be given to marketing the opportunity, using Franchise Shows, Websites, Information Packs etc. as appropriate. Targeted marketing will increase your chances of recruiting the best partners.

Life as a franchisor

Many believe that growing the business that they know and love through franchising will simply mean that they will be doing more of the things they enjoy
The truth is that they are more likely to end up running the franchise network, dealing with legal issues, recruiting new franchisees, ensuring compliance to the concept, and managing disaffected franchisees. For some this is great fun and very rewarding, but for others it is a million miles from their original business.
Of course, as long as this is understood, professionals can be brought in to handle training, concept management etc. The point is to recognise what life will really be like as a franchisor.

More about Mike Teasdale

Mike has over 20 year’s senior level business experience which includes establishing Franchise and Master Franchise businesses in Europe. He runs a number of workshops that help businesses decide whether or not franchising is the right option for them, and has worked with a number to launch their franchises

To contact Mike:
07831 118300
mike.teasdale@augmentor-uk.com