The fundamentals of a successful franchise

Franchising provides a robust, proven and stable platform upon which to build a sustainable future and grow a business.

The fundamentals of a successful franchise

The last couple of years has put huge pressures on businesses large and small, but despite this many businesses and individual franchisees have used franchising as a platform to grow or start their business. Franchised has flourished even in the midst of a global pandemic.

So what should you think about when looking at franchising? When we look at a business that wants to franchise, or indeed when a prospective franchisee looks at a franchise concept they are interested in, we should consider ‘Five Star Franchising’.

This starts with the brand, or concept. Does the business have a recognised brand and good trading history? It may not have, and does not need national recognition, but it does need to have a good local reputation in the areas in which it operates.

Secondly, is there a need for the product or service in multiple locations either in the UK or Globally? Here we must consider if there are any specific factors which make the business successful in its home town that may not exist in other territories. The franchisor must be satisfied that sufficient potential exists for expansion prior to making the decision to launch the concept. The prospective franchisee, as part of their due diligence, must investigate the potential in their own town or region, and be sure that there is a market locally for the business to be able to trade profitably.

We must then consider whether the concept can be easily learned, in a reasonable period of time, by somebody matching the required franchisee profile. Some concepts may need only a few days to teach their franchisees how to do what they do. Others may need weeks or months of training. The important thing here is not only the number of days, but the quality of the training, and that it results in the franchisee having all of the required knowledge and skills to be able to operate the business successfully.

Perhaps the most important factor to consider is the profit margins in the product or service offering. There must be sufficient profits for the franchisor to take a management services fee, and for the franchisee to retain sufficient revenue to make a good profit. Likewise, the fees taken by the franchisor must be sufficient to cover all of their head office and support costs, and for them also to make a profit. The devil is in the detail here, and detailed financial plans will be required.

Finally, a franchisor must have or develop a culture of mutual support and trust with franchisees, and understand that a franchisee will be running a clone of the business in their own territory, as their own business. This only works where a franchisor can trust a franchisee with the brand and IP of the business, and understand that their success will be wholly dependent upon the success of the franchisees. Likewise, the franchisees must understand that they are buying into a proven system, and must follow that system, and not try to do things their own way.

A final key factor also comes into play here, and that is what I call ‘interdependency factors’. In other words, what does the business have that would make a prospective franchisee want to join, rather than just setting up on their own in competition?  The obvious point here is the knowledge and experience gained to date in operating the business. Depending upon the brand, many other factors can come into play here, including developed systems and procedures, centralised services, and computer management systems.

Franchising is a tried and tested method of expansion for businesses looking to expand further, and is a great way for individuals to buy into a successful brand and have a hand to hold through the process of setting up and operating their own business. It is being in business for yourself, but not by yourself.

Alan Wilkinson QFP DipFM
Alan Wilkinson QFP DipFM