Franchising your business can be a fast track to growth but it is not without its pitfalls, as Darren Davies, partner at Hutchinson Thomas explains.
Franchising your business can be a hugely effective way to expand without having to foot the bill for recruitment and for assets such as new premises and equipment. Your franchisees will meet most of the costs of setting up a new branch, and they’ll pay you for the opportunity to do so. They’ll also manage their own teams, leaving you free to look after the business as a whole. Once a franchise is up and running, it can provide you with an income for the whole of its life, much like receiving royalties. There’s no doubt that this is an appealing prospect; however, there are some key questions you should ask yourself before taking the plunge.
- Is my business suitable for franchising?
A lot of people think that franchising their business will solve all its ills, but to be suitable for franchising, a business really needs to be a success in the first place. To attract the interest and confidence of potential franchisees, your business needs to have a strong identity and a solid track record.
- Can my business be successfully replicated in multiple markets?
To work as a franchise, your business needs to be scalable. Is it something that can be duplicated successfully in other locations and markets? If it relies too much on being in a particular place, the involvement of one particular person or highly regional products, for example, it may not be suitable for franchising.
- Will I be able to set my franchisees up for success?
In return for their investment, your franchisees will want training, advice and support with things such as branding, building a client base and marketing. Decide whether you are willing and able to provide this, and how you will go about doing it. They will want to feel that their investment has been worthwhile, and that they have the best chance of making their franchise a success.
- Would I cope well with the franchisee-franchisor relationship?
If you’re an authoritarian boss, having franchisees may come as a shock to you: you can’t treat them in the same way you would your employees. You’ll need to give them more independence and space. You can still lead and steer the company, but you’ll need to reconsider the dynamics of your relationship with your franchisees.
- Am I strong enough to say ‘no’?
Sometimes you’ll know a particular franchisee or location is not a good fit for your business. You may feel tempted to take the money and let them try anyway – but this is likely to cause more problems in the long run. You need to know when to turn down some ‘growth’ opportunities.
- Can I afford the investment?
If you’re serious about franchising your business, you need to be able to foot the bill for marketing materials, business plans, training materials, legal documents, franchise advertising and more. It’s important to price this all up realistically and budget accordingly.
- How will I cope with failing franchisees?
If one of your franchisees is not successful, there’s a danger that your whole brand could be damaged. They could even consider litigation. You’ll need a plan for how you will monitor the performance of franchisees and respond when you spot an issue.
- Do I have the right legal advice and support?
To avoid costly pitfalls, seek legal advice at the earliest opportunity. Hutchinson Thomas is accredited by the British Franchise Association to act on legal matters for franchises or franchisees. Whether you are thinking about franchising your business, or a franchisor in need of advice, we can help.
For more information on franchise law matters, contact Darren Davies on 01792 439000 or email darren.davies@hutchinsonthomas.com