An introduction to franchising
On 30th September 2015, Clive Smith held a webinar that covered all you need to know to franchise your business. Over the course of the hour-long webinar, Clive takes us through the background of franchising, the principles, the mechanics and the requirements. In this video he takes us through an introduction to franchising.
Clive has been working in the franchise sector for over 30 years and has worked with various companies from mature franchises to start ups. As part of the Franchise Intelligence team, he works with businesses to help them franchise and help to develop the business.
Franchising is a tremendous way of developing a business however it is not without its problems and issues. Therefore a very careful and measured approach must be taken when developing the franchise system for a business. This is where Franchise Intelligence can come in, we help put the infrastructure together in the right way so it complements the business’ strategy and culture. We are keen to speak to any businesses interested in franchising and help them understand whether it is feasible.
There are a number of famous brands that have franchised, to name just a few the list includes: McDonalds, Specsavers, Domino’s, Cash Generator and Subway. The franchise sector in the UK is very mature and well developed. The forerunner for franchising was the USA where franchising is a very significant part of their economy. Over the past 20 years, the UK has also made franchising an important part of our economy too. There are now 920 franchise systems operating in the UK which collectively contribute to a £13.5 billion UK turnover. There are also over 37,000 people who have fulfilled their ambition of self-employment by becoming a franchisee. In turn, this has resulted in the employment of over half a million people who work at the franchisee’s businesses.
The British Franchise Association (BFA), who oversee the franchising sector, defines franchising as “where the owner of a successful business (‘the franchisor’) licenses the use of its opertating systems, brand and other intellectual property, to enable another party (‘the franchisee’) to set up and operate an identical business elsewhere. It provides initial training and gives on-going support to the franchisee. In return the franchisee pays the owner an initial fee and an on-going management fee.”
Looking into the various components of that definition, a successful business is one that must have operated for a reasonable amount of time and is profitable. The methods, systems and practises should be developed so that they could be applied elsewhere by another party to achieve the same result.
Operating systems, brand and other intellectual property may be quite an emotional part to be sharing out when it comes to franchising but that is what it is all about. You have built up the reputation of the business and developed a profitable trademark and to expand faster and further you allow others to do what you have done using your business model.
By allowing others to use these trademarks and the business model, they will be able to create an identical business and replicate your success. An identical business is important as if a customer is to go into a store such as Domino’s or Subway in London, Cardiff or Liverpool, they will be expecting the same experience. The business has been tried, tested and developed and it would be irresponsible for the franchisee to try something other than the proven business model if they are hoping to succeed.
Importantly, franchisors need to give their franchisees thorough and comprehensive initial training. The training helps ensure that the businesses will be identical as you will be passing over all your knowledge and experience to the franchisees.
A good, ethical franchisor will then provide their franchisees with ongoing support and retain an interest as to how they are doing. This support can come in a variety of different forms; fundamentally it will be about advice, guidance and mentoring.
From a financial point of view, the franchisor will command and initial fee which will the franchisee will pay you before they start training and trading. This fee will reflect the value that exists in the intellectual property and the access to experience and knowledge within the training. The ongoing management fee will reflect the ongoing support that the franchisor provides.
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