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Franchising your business
After building up a successful business and reaping the rewards, it may be time to think about how else your brand can work for you. Apart from the typical route of employing more staff in new locations, and taking on new premises, an alternative and often overlooked option is franchising. Franchising can offer you the benefit of additional income, along with the opportunity to expand your brand and reach new areas, while maintaining brand control.
If your business has a strong reputation and a record of success, you can offer potential franchisees an opportunity to invest in the brand using their own capital. A well known brand can look attractive to potential investors, who will pay a start-up fee and monthly royalties (typically 10% of turnover) in exchange for the use of the brand and guidance from a knowledgeable business owner who has experience in running the exact business.
Of course, when looking to franchise your business there are a number of factors to consider, not least the initial cost of setting up as a franchisor including costs of feasibility studies, legal documentation and operating manuals. Guidance can be obtained from a franchise solicitor, a franchise consultant or a franchise banker, all of whom will be necessary to the process.
Before becoming a franchisor you should have a working business model which should have been effective for at least 12 months as a pilot to demonstrate the revenue and opportunity for potential franchisees and show that the business concept is “portable” to other territories. For example, a business providing stationary to big companies that works well in London, may not work to the same extent in a small town in Scotland or Cornwall. It will need to prove itself to have longevity in a competitive market, as a business based on short-term fads will have a very limited market prospect.
The business will also need to be transferrable in terms of skills and knowledge, so that franchisees and their staff can be trained to create a uniform standard across the brand.
There will need to be a clear and defined brand identity to mark all franchises as equal and part of the same group, so there is absolutely no doubt among customers or potential customers that there is just one uniform business. This usually involves providing franchisees with approved, standard, publicity material or a detailed style guide for branding and use of the company logo.
The franchise will also need to generate enough profit to support the franchisee, amortise the initial investment over its term (typically five years) and pay royalty to the franchisor. No franchisee will want to invest in a business which doesn’t generate a decent franchisee profit.
The franchisee should enjoy the advantage of trading under an already established name with the backing of a supportive marketing team and an experienced mentor.
If you’re thinking of franchising your business the Company Commercial team at Warner Goodman LLP are hosting a free seminar for prospective franchisors on 23rd March.
This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice. All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.