Your business is doing OK, but things aren’t expanding quite as quickly as you’d hoped and you simply haven’t got the backing for ambitious capital investment. So what do you do? Many SMEs with that problem are finding the answer in one of the UK’s fastest-growing money-making trends – and franchising the business.
A typical example is a Scottish garden make-over company which has created 20 franchise outlets in the past four years and is now turning over £1.2 million a year. It joined an industry which, according to the British Franchise Association, now has nearly 1,000 franchises turning over £13.7 billion a year from 39,000 franchise outlets employing 561,000 people.
Recent franchised UK businesses range from children’s drama classes to dog-grooming boutiques but the BFA warns that not all businesses are franchisable and if yours has one or more of these characteristics, it’s wise to have second thoughts
* A product or service which has short-term appeal
* Gross margins which are too low to offer an attractive return on investment
* Skill levels which require long and intensive training
* Repeat business which relies on loyalty to an individual
* A geographically-defined market which can’t expand.
It’s vital to realise that franchising isn’t an escape-route for a failing business or a way of solving a cash-flow crisis and these are the qualities your business must have if it is to stand a chance as a successful franchisor:
**Credibility** – reflected in organisational size, number of units, years in business, public awareness of the brand and strength of management.
**A proved record** – and plenty of proof that your format really works. Experts recommend that a business should have at least five years of solid business success and a record of consistent profit.
**Adequate capital** – franchising takes time and money. One recent venture cost 30 per cent more to launch than the original estimates.
**An original concept** – you need to be offering something that’s hard to copy, either a strong brand image or protection by trade-marks or patents. Otherwise anyone can start a similar business without having to pay a penny for it.
**Easily taught** – a prospective franchisee should be able to learn the basic business in a month at the most. Some more complex franchisors get around this problem by just targeting prospects who already have experience in the field
**Documented systems** – which are efficient and mistake-proof and provide policies, procedures, forms and business practices in a use-friendly operations-manual or computer-based training module.
An efficient control system - that sounds warning bells the moment something looks like going seriously wrong. There’s always the possibility of a rogue franchisee.
**A successful prototype** – essential to prove the system works and which can act as a proving-ground for new products, marketing techniques, merchandising and operational systems
**The right psychological make-up** – running a franchising company is not like operating an ordinary business – you will have what are effectively business partners and will need different management skills.
**Return on investment** – Of course franchising must be profitable and experts look for a franchise to achieve a result of investment of at least 20 per cent by the second year of operation.
Once you’ve decided to look seriously into franchising your business you’ll need all the expert advice you can get to make sure you get the right franchisees and give them the very best training and support The BFA (http://www.british-franchise.org.uk) produce useful guides to franchising and regular seminars – a useful way of meeting experts and talking to franchisors and franchisees.
And it’s comforting to know that nine out of ten BFA members are forecasting better than ever business this year…