Franchising is a popular business model because it facilitates new franchisees' growth and regular capital injections. Owing to these features, it can also power rapid brand visibility, which can drive long-term growth.
For these reasons, you may look to franchising as the best means to growing your business - but may not know how or where to start.
In this article, we’ll discuss the various elements involved in launching a franchise business and how to grow a successful franchise.
How does business franchising work?
A franchise is where you, as a business owner, perfect a business model and then licence the right of operation and sales of your service or product. Using your brand, a third party (known as the franchisee) then operates under your name in exchange for an initial and ongoing fee.
Not only does the franchisee operate under your brand, but they’ll also use your systems, marketing resources, employee training, and support materials.
Some of the most successful companies in the world are based on a franchise model, including Mcdonald's, Subway and Hilton Hotels.
How do I create a franchise business?
When you’re planning to start a franchise business, much time and care should be taken with the overall business premise and franchise model. It should provide a compelling proposition to sell to potential franchisees.
As in any new business, this early planning stage is important, but with a franchised business, the importance of this stage is magnified. You’re not just trying to convince your bank manager about your start-up business; you’re trying to convince the next cohort of budding franchisees to take on your venture.
How to build a business franchise model?
Whilst some franchisors go straight into launching their franchise operations; others think it essential to prove that the business model works before approaching potential franchisees.
There is no right or wrong answer to this; much will depend on your specific financing and growth strategy and possibly your skillset. However, convincing early franchisees to join with tangible evidence of the model's success in a proven first example certainly helps sell the proposition.
Following this path may also reduce risk as it will allow you to iron out any issues and fine-tune the processes and procedures. This will enable you to learn how things can work before you scale and find more franchising opportunities.
What are the benefits of franchising a business?
Advantages of franchising your business include:
Low risk and reduced costs – franchising allows you to grow your brand without the associated risk of personally launching and operating a branch or subsidiary.
The franchisee must come up with the capital to open the new franchise, and although they’ll receive support and training, it’s ultimately up to them to make the operation a success.
Motivated business owners – because the franchisee is investing their personal capital and owns the business, they’re likely to have greater drive, energy, and ambition when it comes to ensuring the company succeeds.
Brand recognition – the more franchises you have, the greater your brand visibility. This, in turn, leads to elevated consumer trust and increased sales.
Less work for you – unlike opening a branch or a subsidiary where you’ll need to oversee a manager or management team, you can select experienced and motivated franchisees, thereby reducing your need to oversee everyday operations.
How does franchising help a business grow?
As a method of expansion for an established and successful business, franchising can help companies expand nationally and internationally. Growing a franchise network and taking a franchise fee from each franchisee is both a scalable and cost-effective way to create revenue.
Franchising can also strengthen your brand and audience reach and be an excellent way to secure your company's future.
Should I protect intellectual property rights in the initial stages?
Protecting your Intellectual Property Rights (IPR) from the outset is vital. Never has this been more important than franchising, where you deal with third parties with their own commercial interests.
As a franchisor, you should own all the IPRs in the brand name, logo, website, designs, manuals, trading styles, and other patents, trademarks, copyrights, etc.
You then license these to be used by the franchisees in their business solely as permitted by the Franchise Agreement.
How important is it to have a Franchise Agreement in place?
The Franchise Agreement is the fundamental framework between you and the franchisee, and it sets out all the obligations of both parties.
The difference between a good, professionally drafted Franchise Agreement and a bad one could be the difference between the success and failure of your new enterprise.
Do I need to draw up a Franchise Manual?
Yes, you need to draw up a Franchise Manual.
On a practical day-to-day basis, the Franchise Manual is just as crucial as the Franchise Agreement. The manual should set out how the franchised business should look and run in every respect, and you should monitor this closely. If your franchisees stray too far from the design and operational blueprint, it jeopardises the success and control of the whole network.
How to select the first franchisees?
Selecting the first few franchisees is critical when your new business is in its early stages. These small businesses will be instrumental to the early growth phase of the company and provide the ‘shop window’ to the franchisees that follow.
Considering this, you should select based on credentials, experience, and financial stability, but above all, their connection with your brand and their desire to grow and enhance it. This final quality will provide a valid driver to success for both parties.
Is it important to get legal advice when franchising my business?
Counting on the right franchise legal advice is essential. A commercial law solicitor can advise you on all the legal aspects of creating a franchise, including:
- Negotiating and drafting the Franchise Agreement and Manual
- Protecting your intellectual property, including trademarks and patents
- Drafting your terms and conditions and commercial contracts
- Drafting standard employment contracts and a staff handbook
Get legal assistance from LawBite
LawBite has years of experience helping business owners launch their ventures and reach their commercial ambitions. To find out how our franchise lawyers can help you get your franchise business up and running, book a free 15 minute consultation or call us on 020 3808 8314.