Find the right franchise: Sort the wheat from the chaff

Searching through the hundreds of franchise opportunities available in the UK today can present a serious challenge: how do you sort the wheat from the chaff. There are a number of factors to take into account in identifying the serious business format franchise opportunities from the companies that are destined to become tomorrow's failure statistics

In farming, having planted the very best corn that you can afford to buy, there comes the time when it is beneficial to spray the crop so that you can quickly kill off everything else that is trying to grow and be part of your harvest. The same is true in searching for a franchise and the best way to quickly identify the wheat from the chaff is to simply ask if the franchisor is a member of, or in the process of joining, the British Franchise Association (bfa).

Should they not be, then you are likely to be gathering up a great deal of chaff. Admittedly there may be some good wild oats in the field, but you are not in the business of harvesting the oats - you are looking for the wheat. Full membership of the bfa is your best indicator that a franchisor is among the strongest franchise brands in the UK, while those that meet the criteria for associate or provisional membership will also have distinct credibility.

Each year Franchise Development Services carries out an investigation into the sector of the franchise industry which is comprised of non-members, and here is where we see comparably high failure rates. The main reason for this is simply due to the fact that many franchisors do not fully understand all of the infrastructure elements that should be in place before they even offer a franchise. For instance, some are not aware that before they offer a franchise they must own the intellectual property rights to the brand on offer. If this is not registered and secured the franchise offering is not legally sound.

So how do these companies best proceed with structuring their business in an appropriate way for long term success? The answer is simply to contact established and professional Franchise Consultants whose role it is to provide this advice and guidance. A comparison can be made with the aspiring house builder who simply rings up the builder's merchant and orders the bricks, beams and everything else that they think they will need in order to build their house. The best advice is obviously to call in an architect and carefully draw up the plans before submitting them for planning approval.

Likewise professional Franchise Consultants will help you to design and build your franchise before it is submitted to the bfa for their approval. Once you have been granted provisional membership you can develop a successful track record which will gradually progress you to the top as a full member. So let's take a moment to look at three basic mistakes that are so often visible in every franchisor failure.

UNDERCAPITALISATION

Many owners believe that franchising is self-funding. This is not the case and it does require a reasonable amount of capital in order to lay some basic foundations and frameworks before you attend to the detail. The first requirement is for an Evaluation Analysis, which identifies the different ways in which the business can be franchised, so that the most informed decision can be made as to which road is to be followed.

Once the decision to franchise has been made. it normally takes between four and six months to put the complete infrastructure in place and formulate the Outline Franchise Development Business Plan, before the franchisor is ready to consider recruiting franchisees. Attention must be given to over 20 key areas that are essential in every business format franchise. These range from securing the intellectual property rights relating to the brand and logo, through to producing the Operating and Training Manuals and again ensuring copyright protection on these, as well as other deliverables that are going to be passed from the franchisor to the franchisee.

Other key headings will relate to administration systems, business planning for the franchisees, time management, goal setting, monthly reporting systems and disclosure documentation. A franchisor should always produce a business plan based on conservative estimates of network growth, both in terms of number of franchisees and management service fee generation. This will show the capital requirements of the business during early years.

As Franchise Consultants, we often see many very thin franchisor business plans that clearly indicate that they are trying to fund the franchise expansion purely on the basis of selling franchises. These are the types of opportunities that do get off the ground but never reach great heights since they have no ability to keep flying. When one crashes, then they all quickly fall to the ground.

The exact amount of capital that is required to fund a successful Franchise Development Programme varies considerably, but the starting point is normally the funding of the professional Evaluation Analysis and Outline Franchise Development Business Plan. This can range from £3,750 to £10,000 and is sufficient for all concerned to have a good idea of exactly what will be involved as their Franchise Development Programme unfolds, indicating the future capital requirements and timescales for realistic expectations.

While there are always exceptions to the rule, it is normal for a franchisor to recruit a relatively small number of franchisees in year one rather than go for substantial growth and then become and entry in the obituary column.

LACK OF KNOWLEDGE

There is the need for a prospective franchisor to carry out some basic studies so that they can understand the advice and guidance that professional Franchise Consultants, lawyers and accountants will be making. There is a great deal of basic information now readily available on specialist franchise websites such as our own at: www.franchise-group.com

An interesting factor which arises when analysing franchisor failures is the number of companies which have embarked upon franchise development having only relied on their solicitor to produce a franchise agreement, with no other professional advice and guidance taken on board. Many companies do not even track down an experienced franchise law firm, but simply turn to their local solicitor to help them with what they consider to be their only requirement prior to promoting the availability of their franchise!

At a recent exhibition we met with one such person that had created two franchises and had involved what he considered to be a Franchise Consultant, but upon investigation realised that he had little or no real knowledge. This company spent £80,000 over the course of two years and had not succeeded in recruiting the type of franchisee that they were now recognising they needed. We were quickly called in to provide some new thinking as to how the company could best proceed and they are now heading in an entirely different direction but with a total knowledge of the best road to follow.

While every Franchise Development Programme differs there are basic rules to be followed. They key to success is understanding each and every element of the intended franchise and then providing the correct guidelines for the franchisor to follow. Franchisors who call in a bfa-affiliated Franchise Consultant to provide best advice and guidance, can then make the most informed decisions on their franchise development programmes.

LESS HASTE, MORE SUCCESS

In the same way that road accidents can be reduced by lowering your speed, successful franchising is more likely to happen if you take your time and recognise the lessons to be learned on a month by month basis. While there could be a number of reasons for the franchisor to be keen to expand quickly such as to stay ahead of competition, it is far better to successfully establish the correct framework for franchising before moving forward with your franchisee recruitment - allow your competition to follow the fast track and you will then be able to recognise the wisdom of your patience.

Franchising is not about seeing a quick return on the investment by selling a number of franchises as fast as possible. It is more about helping people to establish a business in their region following your frameworks for success and ensuring that you are giving them and yourself sufficient time for this transfer of knowledge. You must have the ability to teach, train and support franchisees - should that not be in place from day one then you will have problems.

At present in the UK there are a number of people that seem set on creating and selling relatively low cost franchises to the market. These individuals and organisations are well known to the bfa and companies like FDS, and a simple telephone call to our offices should provide a recommendation on whether to proceed with a franchise.

FDS was recently exhibiting at a business exhibition and it was of no surprise to see a number of such franchises designed to be sold quite quickly exhibiting. Fortunately a number of visitors to this event did seek our advice and guidance and were quite surprised when we told them that those were franchise opportunities that we would not recommend.

We all know and accept that it is unethical to promote and sell a franchise to any individual if there are question marks about the viability and profitability of the business on offer. It should only be once the business has been totally proven to be profitable that it should be offered as a franchise. We encourage everyone to ensure that the franchise opportunity that they are considering is either a member of the bfa or has taken professional advice and guidance from Franchise Consultants and Lawyers. In either case the franchisor should have a number of franchisees that are totally satisfied with their current return on investment and are willing to talk to prospective franchisees considering joining their network.

Franchising is not for every type of business, but for those where it is relevant it should be seen as being part of their strategic growth. Franchisors must be prepared to commit funding and other resources to ensure the success of the entire network. They must also recognise that the relationship between the franchisor and franchise owners is at the heart of the system and they must be looking for the long term success of the franchisees.

Successful franchising is also about trust. The franchisor must trust the franchisee to operate within the guidelines that are given in the Franchise Agreement and Operating Manuals, and likewise the franchisee is relying on the franchisor to deliver everything that they need in order to be successful. Both parties in franchising have serious responsibilities to deliver and once this respect is in place, there is every reason for both to succeed.

If you would like to have the very best harvest, then ensure that you are reaping in the best fields. There are four to consider: bfa full members, associate members, provisional members and those franchisors endeavouring to create a genuine business format franchise with the assistance of professional Franchise Consultants.

Text: Roy Seaman CFE