EB guest columnist Sarah Jackson explores how franchisors can support franchisees in taking the steps toward starting their own business
Being a franchisee can be a scary experience – and I speak as somebody who has been there. There are so many questions racing through your mind: how do I find the funds for the upfront costs? How do I pay my mortgage and bills when the business is just starting? How can I convince my bank manager to lend me money? Fears about making ends meet are a worry for most would-be franchisees, but throw in concerns about how to run a business and the prospect of operating your own franchise and it can all seem overwhelming.
As a franchisor you have two options: either you act as a distant, all-powerful head office and leave the franchisees to sort themselves out, or you can structure your business plan to make it easier for potential franchisees to enter the world of self-employment. As a former franchisee I know which one I would have preferred. Apart from anything else, it makes good business sense to be as supportive as possible to people who want to make that move, and let’s face it – who doesn’t need a bit of support from time to time?
At Extra Help we decided to structure the business to make it much easier for franchisees to build a successful company with five key principles:
Make it easy for franchisees to buy the business
The first thing most people think when they consider investing in a franchise is that it takes a chunk of money up front. Obviously, investing in a franchise is always going to cost money, but we’ve put systems in place to make that first step easier by liaising with a high street bank to offer 70-80% of the money as a loan, and by accepting the remaining £3,000-£4,000 in instalments.
Make it easy for franchisees to get support from the bank
For a franchisee with little experience of dealing with banks, it’s reassuring to know they can speak to their high-street branch with no need to show them a business plan. After submitting our operations manual, franchise agreement, legal documents, financial statements, a five-year projection and undergoing an in-depth face-to-face interview, we were approved by Natwest’s franchise team. Our business plan is deemed to be sound, meaning that franchisees can borrow up to 80% of the purchase cost, which cuts out a lot of the legwork.
If you have a franchise model that works, prove it to the bank and future franchisees will be able to buy into the business far more easily – it’s a win/win situation.
Make it easy for franchisees to handle ongoing costs
The first few months of running a business are unlikely to be profitable. No business really expects to make money initially, so we don’t expect our franchisees to pay any management fees for the first three months. This gives them the chance to build the business and invest any proceeds back into growing their franchise. After those initial months, when things should be moving a bit more, we don’t immediately hike up the fees because we understand it’s a gradual process. Instead, we keep our management fees deliberately low until the franchise is turning over £2,500 a month, essentially £30,000 a year – however long that takes. After reaching that level, the management fees are 10%.
Make it easy for franchisees to hit the ground running
All new franchisees are eager to get started, so to enable them to get to work straight away, we’ve done the pre-start-up legwork. Each new franchisee is given a database of approximately 100 relevant local contacts in their area, researched using our knowledge of people and organisations that will be helpful to a new franchisee, so all they need to do is make contact and arrange meetings. While it does require an investment of our time, it enables the franchisee to be in a strong position to start making their own money and building their business as soon as possible. Ultimately, that’s good for everyone.
Make it easy for franchisees to shift between full-time employment and running their business
Perhaps the scariest leap when starting any business is leaving the security of full-time employment. We all have bills, mortgages or rent to pay and we all want the reassurance that money will be coming in to cover them, so leaving your job to concentrate on a business that isn’t bringing in the same kind of cash is daunting.
To ease the transition, we have a virtual office taking client calls to make sure the franchisee can continue employment while they build their business to a point where they are financially stable. It also gives franchisees the opportunity to be out of the office, working on building their business without losing client enquiries. The virtual office service is completely free for the first three months and charged at a minimal rate thereafter. The software we provide for our franchisees enables them to store all their databases, information, tax records, expenses, contracts and so on in a secure database ‘in the cloud’. As well as a straightforward way to store information, it also gives them the peace of mind to know that if they can’t manage the business for any reason – illness for example – we are able to log into the database for them and continue to run their business without any loss of continuity or income.
Setting up and running your own business is never easy, but we aim to make it as painless and straightforward as possible because it makes sense for everyone. Unhappy, stressed franchisees aren’t likely to be long-term partners – I know I certainly wasn’t when I was in their position – so making it a more seamless transition is a sensible approach for both franchisee and franchisor. Extra initial effort will result in happier clients, happier franchisees and, in the long term, a more successful business. Everyone’s a winner.