Growing your business by franchising
13th Jan 2010
Today, the franchise sector generates annual turnover of over £10billion and banks which have specialist franchising departments report they are still keen to lend to people taking on a franchised business, as it is seen as less risky than an entirely new
Could Franchising be a way for your business to grow, rather than the more “traditional” routes of growing by acquisition, by opening up new branches, or by appointing distributors or agents?
“Franchising” means different things to different people - in “business format franchising”, you (the Franchisor) allow an independent person or company (the Franchisee) to use your trademarks, branding, business methods and know-how to run their own business. In return, they usually pay you an initial fee for buying into the business and ongoing fees for use of the brand and the support you give them. In many franchises, ongoing fees are a percentage of the Franchisee’s turnover or are a combination of a percentage fee and a mark-up on sales of the Franchisor’s products to the Franchisees.
Obviously, with Franchising, your brand reputation is at stake, so you need tight controls on how the Franchisee operates by using a detailed legal agreement, and by weeding out inappropriate Franchisees through a thorough recruitment procedure.
The benefit is that you should get ongoing income from a motivated Franchisee, who has put up their own money, so is unlikely to want the business to fail. Your brand will reach further and even after allowing for the costs you have in supporting and maintaining you franchisee network, your overheads should be lower than running your own branches.
There are downsides – obvious ones are loss of the flexibility and control you would have if you were running your own branches, and then the fact that you are giving Franchisees confidential information about your business. Even with the finest legal wording restricting their use of that information, you may find it difficult to enforce things, if they don’t comply with the restrictions.
Not every business is suitable to be franchised. The British Franchise Association (BFA) is a voluntary self regulating governing body for franchising and has a number of affiliated professional advisers, such as BHP Law, who can help you assess whether Franchising is right for you.
For a further no-obligation discussion, please contact David Lucas on 01642 660594
Author: David Lucas, Partner (DavidL@bhplaw.co.uk)
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