HOW TO SET UP A FRANCHISING OPERATION

In a recent article, ACID explored the benefits of franchising as a means for brand expansion and growth. These benefits were underpinned by figures released by Nat West and the British Franchising Association, which indicated that the franchising industry grew twice as fast as the UK economy confirming that turnover in this sector has grown ten-fold since the 1980s to nearly £11 billion. Franchising is clearly a tried and tested way for brand owners to achieve these objectives with relatively low capital investment. So how do you set up a franchise which will offer the opportunity to secure distribution for products or services faster than would be the case if you had to train your own employees and develop your own internal organisation?  First and foremost, for a franchise to succeed,  it is important to remember this is a long term investment for all parties and should not be built on a one off idea, fad, gadget or lone product – the business model should be a successful tried and tested format upon which to expand. In the second of this series on franchising Dids Macdonald, ACID’s (Anti Copying In Design) CEO talked to Tom Bridgford of ACID Accredited Law Firm Hammonds on some key points to consider when setting up a franchise.

The System

You will need a concept or system which is capable of being franchised.  This will usually be a successful product or service with an established route to market, backed by a strong brand. As well as the brand, the franchisor will usually provide trade secrets, know-how and training to its franchisees.  This may include market knowledge and experience, sourcing expertise, customer contact details or manufacturing processes.  It is usually contained in a detailed operations manual which enables franchisees to trade effectively from day one.  All this is protected by confidentiality provisions in the franchise agreement. In addition to receiving a franchise royalty from franchisees some franchisors also sell their product to franchisees which gives added benefit, providing an important additional revenue stream for franchisors.

Protection of Intellectual Property

Protection of the franchisor’s brand and intellectual property rights are paramount.  They should be registered where possible, as they will form part of the franchise package.  This may include trade marks, design rights, patents or domain names. Information on registration can be obtained from The Office for Harmonization in the Internal Market or the UK Intellectual Property Office
Registration of intellectual property rights provides a franchisor with exclusive rights to prevent others from infringing those rights.

Franchisees

Finally, of course, you will need franchisees.  The most attractive franchisees are those not only with access to sufficient cash to fund their businesses, but also with the skills, enthusiasm and energy to drive their franchises forward. Clearly, a strategic plan for the development of the network backed by sound processes for franchise recruitment and selection will pay dividends. Sharing your commitment to succeed and each party looking at this as a long-term relationship will also play a vital role in franchise success.

Further Help

There are various organisations like the British Franchise Association who can help find franchisees. The online site provided by the BFA is also very useful. The Royal Bank of Scotland and some of the other high street banks have dedicated franchising teams who can offer advice. They will also provide financial advice and support geared to the specific needs of individual franchise businesses. Both organisations also hold seminars regularly. So if you’ve got a great product or service, a strong brand and the right franchisees, you’ll soon be in business!” Tom Bridgford is head of the International Franchising Group at law firm Hammonds.

Often callers to the ACID legal hotline will ask, how long it will take to set up a franchise? Clearly for any franchise to work effectively it will take time, patience and initial investment to set up the necessary systems and processes. Realistically, most organisations and advisors will say allow between 4 and 6 months. For franchising to succeed, like any other commercial relationship a sound and effective communications framework is essential, two way positive and constructive feedback being a key ingredient. If this is backed by a legally structured franchise agreement, which has been negotiated in good faith on ethical grounds then, if the business model is sound, franchising may well be an effective route to brand expansion.

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