Continuing his latest series, Grid Law founder David Walker explains every aspect of the franchising process for small business owners looking to franchise their company.
If you’re running a successful small business and have ambitions to grow, you have several options. You could grow your business organically by opening more and more branches yourself. Alternatively, you could appoint a network of agents or distributors to sell your products and services for you.
If you have a strong brand and a business system you can replicate, you could franchise it.
But how do you do this? How do you go about franchising your business?
Launching a successful franchise requires careful planning. You have to accept that it’s going to take time to get it right but once you have your franchise operation ready, your growth is likely to be far faster than if you’re trying to open more and more outlets yourself.
Document your procedures
To start, you need to be very clear about how your business works. Most small business owners and entrepreneurs instinctively know how to run their businesses and deal with any problems or issues they encounter.
However, the key to a successful franchise is consistency.
You need all of your franchisees to be able to run their businesses using the same systems as you and achieve the same results. To help them do this, you must document all of your processes and procedures and collate them into an operations manual.
This operations manual will contain the day-to-day instructions your franchisees must follow to run their business according to your systems.
Protect your brand
While you’re documenting your procedures and preparing a first draft of your operations manual, you should also be protecting your brand as a portfolio of trade marks.
Although Nando’s is not a franchise in the UK, the Nando’s versus Fernando’s dispute is a classic example of what could happen to you as a franchisor. I wrote about this in a previous article, but very briefly Fernando’s opened a chicken restaurant with very similar branding to Nando’s. Nando’s threatened them with trade mark infringement and Fernando’s rebranded.
It wasn’t the size of their business that gave Nando’s this power, it was the strength of their trade mark portfolio. This is something that a business of any size can achieve and doing so doesn’t have to cost a fortune.
The Nando’s brand is very well protected. They have protected their name, their logo (in various colours and formats) and even elements on their menu such as the “peri-omiter” chili logo.
So, what can you protect?
Think about all the different elements of your business. How you can make them distinctive so that they’re instantly recognisable as yours?
If you need to rebrand some of them so that you can register them as trade marks, now is the time to do it.
If you can’t stop copycat businesses setting up in direct competition to your franchisees, they will wonder why they are paying you a franchise fee. Your franchise will then be worth a fraction of its potential value.
Test the franchise with a pilot operation
Before selling a franchise to a potential franchisee, you need to prove that someone other than you can follow your systems and run a successful business.
To do this, set up a pilot operation (or preferably two). The pilot operation may be a new business owned by you, or it could be a franchisee who you offer preferential terms to because this exercise will be a learning curve for both of you.
The pilot operation should run for at least a year so the new business can experience all trading conditions. During this time, you should be analysing their results, refining your systems and ironing out any potential difficulties.
Some of the most successful franchise businesses are the ones where the franchisors give their franchisees the best support and training. During the pilot operation you should also work out what initial and ongoing training you will need to provide to ensure your franchisees can achieve consistent results.
When you’re confident you have a system that someone else can successfully follow, you’re almost ready to start selling franchises.
Preparing to sell franchises
Following the successful completion of the pilot operations you will have to finalise your operations manual and also prepare a franchise agreement that franchisees can sign up to.
The franchise agreement is a legally binding contract which serves two important purposes. First, it gives the franchisee the right to use your brand and business systems in their own business; and second, it enables you, the franchisor, to control the franchisee to ensure they follow your systems exactly as you want them to.
In the UK, there is very little formal regulation over franchise businesses. Instead there is a system of self-regulation through the European Code of Ethics for Franchising. This gives guidance on best practice in the franchise industry.
If you wish to become a member of the British Franchise Association, something you should seriously consider, you will have to abide by this code. This code requires you:
- to have operated a pilot scheme before launching your franchise;
- own all of the relevant brand names and trade marks; and
- provide your franchisees with initial and ongoing training.
As I have explained above, you should be doing this anyway so you shouldn’t find complying with the code too onerous.
As well as preparing your business for franchising, you need to prepare yourself. As a franchisor, your day to day role is going to change. Rather than focusing on running and growing your own business, you will have to be there to support your franchisees. If you don’t want to do this personally, make sure you have someone in your business who is dedicated to doing so.
At some stage while you are franchising your business you will need professional help. Whether it’s registering trademarks or preparing the franchise agreement, you shouldn’t cut corners with these tasks as they will be the foundations of your franchise business.
If you have any questions about franchising your business, please feel free to email me at firstname.lastname@example.org and I will be delighted to help you.
Catch up on the first two articles in David’s franchising series:
- Can I franchise my small business? 4 elements to successful franchising
- The advantages and disadvantages of buying a franchise when starting a business
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