Franchising your business
Franchising could be the ideal way to expand your business - but it's not something to embark upon lightly. If you're considering taking the plunge, we can help you decide whether franchising is right for you, and show you what it takes to develop a successful franchise network.
Is franchising right for you?
Franchising is a route towards expansion for an established, successful business looking to grow. It's certainly not a cure for a struggling business. It will take more than just a good idea to persuade prospective franchisees, you'll need to demonstrate you have a tried and tested concept.
Before you begin, you need to think hard about your answers to the following questions. If your business doesn't tick all the boxes, you may not be ready to franchise.
- Is your business successful and profitable, with an established base?
- Is there a year-round market for your product or service, as opposed to it being seasonal or `fashion' related?
- Is there sufficient margin to ensure that both you and the franchisee are able to make money, while remaining competitive?
- Can you show that your business can be replicated. Do you have additional outlets or offices already in place?
- Is your management team strong enough for you to `step back' and concentrate on franchising?
- Have you access to initial funds to pilot and launch your franchise?
You'll find more information to help you decide if franchising is right for you at the British Franchise Association (bfa). Their website is a great place to start exploring your options.
What are the costs?
Launching a franchise could cost you in the region of £50,000 - although this will obviously vary depending on the nature of your business. As you weigh up the costs, you'll need to consider the following:
- General development costs - market research, consultants' and solicitors' fees, development and testing of systems and procedures, pilot operations.
- Franchise package development costs - the package provides franchise owners with all the systems, procedures and other support needed to operate successfully, such as training, sales literature and operations manuals.
- Recruiting costs - production of your prospectus, advertising, franchise exhibitions, time spent on selection interviews.
In terms of income, your initial franchise fee won't contain a large profit element but you'll start to recoup the outlay once you begin to recruit more franchisees. To find out about the types of income you might receive, read our 'Growing your business through franchising' guide.
Getting advice from experts
Taking professional advice can be a crucial element of your success. For invaluable practical guidance to help you put your franchise operation together, you might consider appointing a franchise consultant. We recommend you use a bfa-affiliated consultant and research their experience thoroughly. Unlike accountants and lawyers, consultants aren't registered so interview at least three and talk to some of their existing clients.
We also recommend you use a bfa-affiliated specialist franchise lawyer to draw up your legal agreement. This important document sets out the terms under which you're agree to sell the franchise, your obligations and those of your franchisees. Your franchise lawyer can also advise you on protecting your trademark and brands.
Make sure your accountant understands franchising and the operational changes it can bring. Your own business plan will need to address the issues of your expansion plan and how this will affect your business. Be careful not to overestimate growth rates.
For details of bfa-affiliated consultants, lawyers and accountants, visit the Affiliate Members section of their website.
Finding and training your franchisees
When you're selecting franchisees, make sure you choose people with the right skills and attitudes to join your network. Take care if using a third party to recruit on your behalf - they may not be the best judge of the skills and experience you want in your franchise network.
A good web presence is essential - many franchisors say they get most of their enquiries from this source. Being active on social media is becoming increasingly important for recruiting franchisees. Having a strong presence on Facebook, LinkedIn and Twitter will help you as communication with consumers often leads to communication with prospects. Other recruitment methods include being listed on the bfa website, attending franchise exhibitions and advertising in local and national press, specialist franchise magazines and industry-sector publications.
Your training programme is an important aspect of a good franchise. Your initial training course should equip the franchise owner with the necessary skills to operate the business. Your ongoing training should ensure they have everything they need to deliver quality.
Be careful not to think of franchisees as managers of company-owned outlets. They're owner-operators who have invested considerable amounts of their own money. Treat them with respect and ensure that both new and existing franchisees are able to call on you and your team to help them to grow their businesses.
Helping your franchisees get finance
In most cases, your franchisees will need to borrow in order to buy your franchise. For new franchise operations, banks may lend 50% of the start-up costs. Once a franchise network is established, franchisees may be able to borrow up to 70% of the start-up costs.
One of the key roles of the HSBC franchise unit is liaising with our business managers to help them consider requests for finance from prospective franchisees. We want to make sure they have a full understanding of the businesses they're assessing so they can make fair and balanced decisions.
Your prospective franchisees will need to establish exactly how much they need to borrow and what security can they give to support their request for finance. They'll also need to start preparing a business plan along with clear and accurate cash flow forecasts for the first two years of the business. This is where you come in. The more input you can provide in helping franchisees to create realistic forecasts, the greater their chances of having their lending approved.
Another key factor in helping your franchisees to get the right finance package is setting up a successful pilot operation. For more on pilot operations, read our 'Growing your business through franchising' guide.
How we can help
Our specialist franchising unit has more than 30 years' experience in financing franchise operations. Over that time, we've learnt that the key to success in business is developing strong mutually-beneficial relationships. That's why we work closely with franchisors as well as franchisees.
Our franchise experts can help you decide whether franchising is right for you and take you through the steps you need to develop a successful franchise business. If you're looking for finance to help you set up your operation, we can put you in touch with one of our network of HSBC managers who'll get to know your business before assessing your lending request. To see what we can do for your business, simply give our UK-based franchise team a call on 0800 234 6224.