Rob Tiffen, senior associate at Birketts LLP, highlights what you should get for your franchise investment
Buying a franchise is often thought of as purchasing a ready-made or off-the-shelf business. This is because most franchises offer a package to a franchisee that includes all the vital components they will need to be successful in their business, all for a one-off investment plus a regular monthly fee.
Here’s what’s contained in the average franchise package:
Business know-how or system
This is one of the most crucial parts of a franchise package. When a franchisee buys a franchise, they are buying into a business model, often called the ‘system’, which should have a proven track record. This is the sum of all the parts of a franchise and is often best shown through the financial performance of the network and its history and size.
If a lot of people have achieved good turnover figures for a long period of time, this suggests the system works. For this reason, most packages include financial information and the opportunity for the recruit to speak freely and privately to existing franchisees about the success of the system.
Branding is another key part of a franchise package. Most successful franchises have a strong brand. A franchisor needs to have protected their brand as much as they can and should be clear on what rights a franchisee has to use the brand in different ways.
A franchise package should include initial training for a new franchisee and regular follow-up training for them and/or their staff. Good training at the beginning of a franchise is crucial to a franchisee getting off to a flying start, while regular follow-up training ensures brand standards are maintained and new operational developments are shared throughout the network. Often a franchise will have an annual conference for its network that helps with this.
Different franchises have different property demands, but where a franchise is site based, the franchise package should include assistance with this. This can range from expert help with finding an appropriate site to agreeing to operate from a pre-chosen site the franchisor has earmarked to running the franchise out of a site where the franchisor is the landlord.
Many franchise packages include back office support for the franchisee, such as bookkeeping or invoicing services. This enables the franchisee to concentrate on other parts of their business, like marketing and sales or recruitment. If this support is included in the franchise package, the scope of the support and the mechanics of how it works all needs to be clear.
A franchise package should include marketing and promotional support, which usually works in a number of different ways. Most franchises require a regular payment from their network - usually called a marketing levy or something similar - that’s used for national promotional activity. Most franchises substantially subsidise the cost of national marketing, as it benefits everyone involved in the franchise for it to be successful. Some franchises welcome input from their franchisees on the way national marketing is carried out, but most franchisees will have little say in how it is conducted.
A franchisee will be expected to produce business plans that include details of marketing and will need to expand and develop their business in their territory. A good franchisor should provide help and support with this, which can range from producing good quality materials to use to regular meetings to discuss different initiatives that might be successful to helping prepare a fully budgeted marketing plan.
My experience is that this area is often where franchisors and franchisees fall out because the franchisee either underestimates the amount of marketing they need to do themselves or because they want to try to market their business in a different way to the rest of the network.
It is crucial the franchise package is clear on exactly what marketing and business development a franchisee will be required to do themselves and how the network approaches marketing and business development, to ensure the franchisee and the network will fit together well.
Some franchise packages include a different process for dealing with large, multi-site customers of the brand. These are often called national account customers or key customers. This can be very attractive for a franchisee, as often it can mean they get work from a large business that operates in their territory already without having to bear the costs of marketing to them. A franchise package should be clear on whether a franchise has these types of customers and, if it does, how the customer relationship and billing relationship are managed.
A franchise package can also include nominated or key suppliers. This means a single or few suppliers have been preapproved by the franchisor as being the only suppliers of particular goods or services to the entire network. This often ensures the quality of the supplies to the network are consistent and can also often mean the network pays a cheaper price for the supplies due to their bigger buying power when grouped together.
Finally, the franchise package should include the operations manual. This is the franchisee’s guide on how to run the business. A good, easily understood, accessible operations manual is a cornerstone of any successful franchise and is therefore also a key part of the franchise package.