The IoD’s Information and Advisory Service offers guidance for any company thinking of joining the UK’s 1,000-strong army of franchised brands
Permitting third parties to trade under your brand is increasing in popularity as a growth strategy, according to research by the British Franchise Association (BFA). If the idea of becoming a franchisor sounds appealing to you, consider the following recommendations from the IoD’s Information and Advisory Service (IAS).
Ask yourself: ‘Is my business model truly franchisable?’
If your enterprise is proven, profitable and easily replicable in a number of regions, franchising could be a cost-effective expansion route.
You’ll first need to write a business plan that includes the reasons for franchising and a market analysis to show that your offering is distinctive enough to be franchised and the demand for it is sufficiently widespread. Then you can start ensuring that your intellectual property is protected by means of trademarks and/or patents.
Run a pilot operation
This is a company-owned outlet that’s run as if it were a franchise. This crucial viability test will identify weaknesses and enable you to optimise key operational aspects, including recruitment and training policies, reward structures and quality-control processes.
For the best preparation, you should run a number of pilot operations in a range of locations for two years.
Draft a franchise agreement
This will set out your rights and obligations alongside those of your future franchisees. According to the BFA, the final contract will run to at least 40 pages. Since it is a bespoke document, you’d be well advised to engage a specialist franchise lawyer to help you write it. The BFA (thebfa.org) also offers useful guidance and resources on this subject.
Write an operations manual
This is a guide for franchisees to setting up, running and growing a franchise, including comprehensive instructions on its daily processes. The manual should be accompanied by a training programme that will enable any franchisee to develop all the skills required.
Find your franchisees
Only one in 10 serious enquiries by potential franchisees will result in an appointment, according to the BFA, so recruiting the right candidates is a significant task. Writing a prospectus that sets out the benefits of being a franchisee and your selection criteria can help in this respect. It’s important to be candid about your expectations. McDonald’s, for instance, requires its franchisees to make a 20-year commitment and a “significant upfront financial investment, which means having at least £110,000 in unencumbered funds”.
Set up a support system
As a franchisor, you’ll typically retain overall responsibility for functions including finance, administration, product and/or service development, marketing, training, performance management and network communications. The level of support you offer franchisees will depend on your business model, but the BFA recommends setting up a central management function and even hiring field support staff to help your franchisees strengthen your brand.
How the IAS can help you
l The Business Information Service (BIS) is accessible by email (firstname.lastname@example.org) or phone:
020 7451 3100
l The Directors’ Advisory Service (DAS)can give guidance by appointment, either face to face at 116 Pall Mall or over the phone:
020 7451 3188
l The legal helpline can answer quick queries about a vast range of issues:
0870 241 3478*
l The tax helpline can give callers advice on both commercial and personal tax matters:
IoD members are entitled to 25 enquiries a year to the BIS; four sessions with a DAS adviser; and 25 calls to both the legal and tax helplines. For further details, visit iod.com/information or email email@example.com
* Quote your membership number
† Quote your membership number and reference number 33337