Franchising your business - take the right path

There are many things to consider when a business takes the franchise route to expansion. Richard Holden highlights some pitfalls to avoid

Franchising your own business can be an excellent way to ultimately achieve national coverage by using the resources and financial commitment of investors. There are plenty of myths about franchising a business so let’s take a look at some of the most common misconceptions promoted by the less reputable advisors in the franchise marketplace.

1. Any type of business can be franchised without any risk to you

Franchising doesn’t work for everyone and business owners should carefully consider the available options before embarking on their franchising journey. There are many examples that franchising, as a route for business expansion, works well across a wide range of industry sectors – however there are exceptions. Consultants should thoroughly review the feasibility of franchising your business and whether there are alternative options that may better suit your particular business.

2. We do most of the franchising work for you, leaving you more time to devote to your existing business

Believe this and you’ll be setting yourself up for a big fall. Some consultants claim that they will do 90 per cent of the work for you. Even if it was possible to develop a viable franchise system without a great deal of your own input, why would you want to do that? You have devoted the time and effort building your business and you know it better than anyone. To develop any franchise, the business owner’s input is essential and it will mean a significant amount of time needs to be devoted to the task. Avoid consultants who say they will do most of it for you no matter how tempting their offer may seem.

3. You can franchise your business for a fixed fee from just £6,000

It is easy to see why these offers are so enticing, particularly in the current economic climate, when some consultants quote three, four or even five times this amount. There is truth in the old saying ‘you get what you pay for’ and £6,000 doesn’t get you very far in developing a viable and successful franchise. Unscrupulous advisors make claims to franchise your business saving you thousands of pounds on unnecessary costs. However, they do not deliver what is most important – a sound franchise system. Another timeless phrase springs to mind ‘if it sounds too good to be true then it probably is’.

4. Developing a franchise is self-financing as you are using the franchise owner’s capital to fund the growth of your business network

It can be quicker to develop a franchise network over growing your business organically using your own capital. I’ve seen consultants claim that your franchise owners will fund the expansion for you. Developing any ethical franchise network will take a significant initial capital outlay from the business owner. It can take several years for franchisors to fully recover their initial investment and for the franchise to become self-financing.

5. Franchise document templates will save you both time and money

Consultants who claim to offer would-be franchisors a service that is customised to their specific business needs and then promote template franchise documents are to be avoided. Businesses are individual and unique and a ‘one size fits all’ approach simply doesn’t work. Franchise legal agreements, prospectuses, training and operations manuals should be bespoke to each business. Template documents can save you both time and money when you initially set up the franchise. However, without the right professional advice there is a strong possibility that you are being set up for significant trouble further down the line.

6. You can expect rapid growth and a quick return on your investment

Some advisors make everything sound so simple and project unrealistic franchise owner growth targets. The reality is that you won’t recover your initial costs within a few months from recruiting your first couple of franchise owners. There are no short cuts if you wish to build a successful franchise brand with longevity. It is irresponsible and misleading to project anything other than very modest franchise owner recruitment targets particularly in the first year or two. Finding suitable franchise owners is not easy and a selective approach is required.

7. We will recruit all your franchise owners for you

The sole responsibility for the selection of potential investors should not be put in the hands of franchise consultants. It is your business and you need to control the selection process, making the final decision about who you award a franchise to. You may welcome guidance and support in recruiting your first few franchise owners until you have learned the ropes. Be wary of consultants who make their money by recruiting franchise owners for you. The temptation will always be there to force unsuitable candidates upon you so that the consultant can secure their commission. This will lead to big problems for you further down the line.

8. There’s no risk to you – if you are not fully satisfied we’ll give you a money back guarantee

The age old ‘money back guarantee’ sales method is tried and tested and lures people into making a commitment that they may later regret. How many people do you know who have actually been successful in getting their money back for not being fully satisfied with a service? Not many I guess. Always get the terms of a guarantee in writing before you make a commitment. Better still, avoid people who make these offers altogether. These consultants are unregulated so who do you go to if you wanted to escalate a complaint against them? Using a British Franchise Association (bfa) affiliated consultant will give you some degree of comfort.

9. It’s simple, franchise owners have the motivation to succeed

Don’t be fooled by those who tell you that all franchise owners are 100 per cent focused on making their business work and they will follow your systems to ensure their success. Most will but some won’t. Any long-term franchisor will tell you franchise owners that closely follow their systems perform better than those that don’t. Franchise owners are individuals and some will be more motivated than others. What is certain is that it won’t all be plain sailing! New franchisors will spend time and effort supporting their network and they will have plenty of performance and motivational problems to deal with, just like any employer would have with their own staff.

10. Banks are supportive to all franchise businesses

Franchise specialist banks, such as Lloyds TSB, do offer preferential terms to well established and proven franchises and provide valuable assistance to investors purchasing a franchise opportunity. For those business owners who develop their franchise model without the support of reputable franchise professionals, the banks are less likely to finance their franchise development plans or support potential investors with the finance they may require. Franchising on the cheap will severely restrict you and your franchise owners’ banking and finance options.

Next Steps

Before you do anything, attend a franchise seminar. These ‘must-attend’ events will give you an invaluable insight into franchising your business. Lloyds TSB has organised free educational seminars for would-be franchisors on the March 2 (London), March 3 (Oxfordshire) and April 14 (London). The bfa also runs a programme of seminars throughout the UK and details are available on the www.thebfa.org website. The Franchise Departments of the major banks will offer guidance on which franchise professionals you should speak to as well as the ‘rogue’ consultants to avoid.

Use the services of experienced franchise consultants and solicitors who are affiliated to the bfa. Get a letter from the consultant prior to engaging them, setting out what they will offer you and an individual breakdown of costs for the entire process. Ask for references from their former clients and ensure you follow them up. Meet with at least three consultants before deciding who is best suited to assist with the franchise development of your own business. You wouldn’t rush the decision to buy a house, so don’t make the mistake of jumping into franchising without researching your options and checking out those who will be advising you.

Richard Holden heads up the Lloyds Banking Group Franchise Unit and is an expert speaker at exhibitions and seminars. He also regularly contributes to the national and trade press. The Lloyds Banking Group has trained franchise managers based throughout the UK to offer support to both franchisors and franchise owners. Lloyds TSB and Bank of Scotland are affiliate members of the British Franchise Association.