Franchising is a well-established and successful model for growing a business.In fact, many famous brands in the UK use franchising as a means of growing their brand. Mike Ryan, Chief Executive, Pack and Send explains steps to expansion by franchising your business
According to British Franchise Association (BFA) and Natwest January 2019 report, businesses that operated under a Franchise License contributed in excess of £17 billion to the UK economy last year. With such positive figures, it’s easy to see why more and more small business owners are using the franchise model as their means of expansion.
So, what is the current climate for UK franchises and what are the key steps every SME owner should follow…
The evolving franchise landscape
While the number of business systems that are franchised has only slightly increased in the past seven years, from 929 in 2011 to 935 in 2018, the number of individual units operating under the grant of a Franchise License in the UK has increased by almost a quarter over the same period. For example, Costa Coffee had just over 170 units 10 years ago, and now has 2,300. Bluebird Care has grown from 35 to 188 units over the past decade.
When looking at profitability at a sector level, there is little difference between smaller and larger franchises except for those investing more than £20,000 during set-up stage, having higher profitability than those who have invested less. Of the 198 businesses surveyed, only three reported they were currently “loss-making”.
It’s also interesting to look at the regional distribution of franchising in the UK as it becomes more widespread. Franchisees continue to be concentrated in urban centres and per capita, the South East, South West, Midlands and North East have the most franchised businesses, whereas Scotland, Northern Ireland and Wales are home to the least.
The first steps
If you’re ready to take your business to the next level, your operating prototype is readily duplicated, your accounts are strong and your brand has good credibility, expanding your business through franchising could offer you the following:
• Rolling out a business format which is sold for a regular fee to independent operators;
• Developing your business with the additional input of franchisee capital, increasing the opportunities for rapid expansion;
• Reducing your overheads and staff costs; and
• Gaining a presence in new locations and international markets.
The role of any Franchisor or Master Franchisee is to recruit, train, manage and motivate their franchisees whilst at the same time maintaining the integrity of the brand and business system through managing Franchisee’s compliance.
To do this you’ll need a comprehensive “operations manual”, detailing exactly how a Franchisee will get their business up and running and continue to do so. From marketing, supplier relations and customer service, you need your franchises to run their business using the same systems and achieve the same results.
Seeking the advice from a lawyer, a Franchise Agreement must be drawn up to ensure you have the appropriate rights within a framework of fair and reasonable treatment for franchisees, setting out the obligations of both parties. By deciding to explore franchising your small business, you will prioritise speed of brand growth over a desire to own all assets and future profit.
It’s also vital to protect your brand with trademarks and grant usage to your franchisees. If you need to rebrand your logo, company name or assets so you can register them, now is the time to do it.
Once you’re all set up, launching a pilot franchise can help prove the model works without you. It’ll also give you a chance to identify any gaps in operational processes which can be addressed before you officially launch.
Upholding high standards
As your brand grows across multiple locations, strong management and ensuring Franchisee compliance is key to upholding high standards, protecting your brand and driving profitability.
When it comes to selecting franchisees, you should be clear on what characteristics and experience are appropriate to your business system. A thorough screening test is a must to make sure you’re confident they have what it takes. If someone is looking to invest a lot of money in your company, be available to speak to them face-to-face, as first impressions count!
The key mantra of any successful franchise is quality maintenance. To keep on top of performance, create a structured plan for franchisee growth, setting high but realistic expectations for year-on-year growth.
To achieve consistency across the board, consider launching a mentor programme where your most successful franchisees support new or under-performing franchisees, or those who are under-performing by sharing best practice.
A robust communication loop is also essential for running a successful franchise. Franchisees need to be able to contact you in both a private and open setting, in order for you to track and respond to their concerns.
It’s also good practice to regularly block out time to be present on the ground to help you understand any challenges or systems failures and what can be done to address them.
Once you’ve established your franchise in your home market, you may turn your attention to markets overseas. According to the same report, one in three UK franchisors also have international operations.
The Body Shop, launched in 1976, remains one of the best examples of a UK franchise finding widespread success internationally with almost 2,000 stores in 66 markets.
However, roadblocks remain which are stopping franchisors taking advantage of international commercial opportunities. In 2018, country-specific legislation was identified as the biggest barrier, followed by language differences and a lack of suitable franchisees.
Going into a foreign market is a significant endeavor, so stick to one first and seek legal advice on the country’s franchise legislation during the research stage.
Always visit your market before making a deal, attending franchise trade shows or expos and speaking to a local development company. It’s also important to be open to adapting your brand or concept to appeal to customers in your chosen market, taking into account cultural differences.
You then need to decide if you want a master franchisee, who is granted the right to sell franchises in the market or an area developer, offering a single operator the right to open multiple locations themselves.
With Brexit looming, franchisors must also consider the effect of changes to the movement of goods and people, as well as currency volatility. While the future is uncertain, businesses should plan for cost increases by reviewing their franchise agreement and deciding how these will be absorbed or passed on to consumers. Some franchises might have their prices fixed by their franchise agreement, taking the decision out of their hands.