How to franchise your business
In this article, we'll cover:
How franchise works
If you’re looking to franchise your business, you’ll first want to understand how a franchise works. That way, you can be sure it’s the right strategy for you.
In a nutshell, you (the franchisor) grant permission to a franchisee to use your established brand, working under it to run their own branch of the business. You’re essentially allowing a franchisee to own and operate a tried and proven business for a pre-determined period.
The details of the relationship between the franchisor and franchisee are outlined in a contract called the Franchise Agreement. This will iron out the intricacies of the arrangement, including:
- The duration of the franchise and any renewal rights
- The franchisee’s obligations for performance, paying fees, marketing, reporting etc.
- The initial training
- The start-up package, including an outline of costs
- The operations manual
- The ongoing support available, e.g. marketing and training
- The trademark licence
- Quality and standards
- Terms & conditions
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How do franchises make money?
Wondering how franchises make money? The franchisee must pay the franchisor a franchise fee, start-up fee, and ongoing royalty payments, which are typically a percentage of gross sales. They’re basically paying for your support, to use your tried-and-tested business model and to benefit from the reputation you’ve built for your brand.
However, even though you’ve worked hard to grow a profitable business prime for franchising, franchisors will typically continue to plough efforts into the brand and support their franchisees to help ensure success.
How to franchise your business in 7 steps
Franchising an existing business marks an exciting time in your entrepreneurial career. But how do you actually franchise your business?
If you’re wondering how to sell a franchise, you’ll find everything you need in the section below.
How do I franchise my business?
1. First, evaluate whether your business is ‘franchisable’
- Is your business credible?
- Do you have a clearly defined and recognisable brand?
- Do you have proven methods of trading that can be replicated?
- Could you teach your business to others?
- Does your business have something unique about it?
- Do you have a profitable business model?
- Do you have the financial capability to franchise your business?
- Do any parts of your business model need to be adapted to make your business franchiseable?
The British Franchise Association (BFA) is a useful resource for business owners looking to franchise their business model.
2. Next, outline a strategy to achieve your goals
What goals do you want to achieve through franchising, and how will you make that happen?
- Do you want to grow nationally or internationally?
- How many franchises would you like?
- How will your franchise model work?
- What will be your operating standards?
3. Contact a specialist franchise solicitor
It’s crucial you speak with a specialist to help navigate the complexities of the franchise system. After all, you’ve reached this stage because you’ve worked hard to create your own business. A specialist franchise solicitor will help to protect it.
A franchise solicitor can put together the franchise contract for you, which will offer huge peace of mind for such an important transaction.
4. Crunch the numbers
When you franchise your business, you normally charge an initial start-up fee, plus ongoing royalty fees.
You have two choices when it comes to the royalty fees:
- You charge a set amount each month, with your franchisee paying you the same amount regardless of their profits.
- You charge your franchisee a percentage of their monthly profits. The BFA averages this to be around 12% of the franchisee’s sales.
5. Source suitable franchisees
Just as you would recruit employees, you need to have a structured recruitment process in place for potential franchisees too.
- Of course, you want the right type of person to represent your brand, so take your time to get the right fit.
- You will need to relinquish some control as your business expands, so trust will be an important factor here.
- And remember, you can teach the ‘hard skills’ in your training program, but you can’t teach someone how to have a great work ethic or personality!
Ideally, your franchisee will bring something new and fresh to the business that can help to take it to the next level.
Before disclosing information relating to your business, it’s wise to ask your potential franchisee to sign a confidentiality agreement.
6. Provide training
In order to consider a potential franchisee, the chances are you’ll need them to have a certain level of skill and knowledge. However, to help make sure your franchisee is successful, don’t scrimp on the time you dedicate to preparing, delivering, and maintaining your franchise training.
As part of the Franchise Agreement, you will have outlined the training you’ll provide and the operations manual for the business.
Having built a successful business, you’re probably no stranger to the various marketing methods available, and how they can help to grow your brand.
Once your franchise is agreed, it’s important to get the marketing wheels in motion again. This will not only help to generate business for the new franchise, but it’ll also build greater brand awareness overall, and perhaps attract more franchisees too.
After an initial marketing push, it’s quite typical to set a marketing fee for the long-term, which should be outlined in the Franchise Agreement.
Entering a franchise agreement is a big step for both parties. You may find it useful to anticipate the kind of questions a potential franchisee might be considering at this stage.
How to franchise your small business
With a profitable small business, it’s only natural to wonder how to take this to the next level. After all, there’s only one of you, so how can you scale up? It is possible to franchise your small business. Here’s how.
How to turn your business into a franchise
1. Create an operations manual
You know your business inside out, but could someone else step into your shoes and run the business just as you do?
Start documenting every aspect of your business to help provide a framework that will ensure consistency.
2. Protect your brand
It doesn’t cost a lot to trademark your brand, but it’s invaluable as a tool to stop businesses from copying your brand as you become more visible.
3. Test the waters
Will your business be successful as a franchise or not? Take it on a test run to find out if your operating manual is up to scratch. You should also measure results, figure out what training is required, and identify any pitfalls before you move into the arena of franchise agreements.
Run the test as a pilot operation and work with a franchisee who’s willing to navigate this learning curve with you (normally for preferential terms).
Once you’ve completed these three steps, there’s nothing stopping you from taking the seven steps to franchise your business, as outlined in this post.
Ultimately, it’s crucial not to rush this process. With this guidance, specialist advice from the BFA, and sound legal counsel, there’s no reason why you can’t create a successful franchise.
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How do I make my business a franchise?
To make your business a franchise, you must first make sure your business model is franchisable. Next, work out your business strategy, enlist a franchise solicitor, figure out your fee structure, find suitable franchisees, provide training, and then market your operation. Make sure you protect your brand with the appropriate trademarks too.
Can you franchise your business yourself?
While it’s possible to do the preparatory work to franchise your business, it is recommended you seek legal counsel from a specialist franchise solicitor when it comes to the Franchise Agreement.