Choosing to franchise might appear on the face of it to be an economical way of expanding your business, certainly from the outsiders point of view, before they have considered what it takes set up the franchise they might fall into the trap of thinking one can ‘make loads of money’, however there are significant costs both to your existing operational business and to the newly franchised business.
The costs incurred might be (but are by no means limited to):
This usually involves investing in greater protection than the average small business. An ‘attack’ on your brand can be far more costly in the long term if you haven’t adequately protected it.
Perhaps primarily a time-cost but it is valuable to have this on-line as well as on paper which may incur costs.
This could be anything from attending a seminar on franchising to retaining an experienced franchise consultant. The franchising industry is a friendly and collaborative one and, unless your franchise is a direct competitor, most franchisors will be happy to share their knowledge with you, however, their advice might not suit your sector/franchise. An experienced consultants will examine your business model, tell you if it is suitable for franchising and help you to recognise the core of your challenge; they can identify where your weaknesses are, help you address them and/or find a way round them. A good consultant won’t necessarily be able to do everything for you but will refer you to people who can.
The franchise agreement
Don’t stint on this; a professional bfa accredited solicitor will protect you (and the franchisee of course) and it is a truly false economy to cut corners on this. Make sure your solicitor has an in-depth understanding of current UK franchising law; a template agreement may sound economical but is unlikely to protect you as well as a bespoke one; remember your goal is to protect you, your business, your brand and your franchisees.
A CRM for the operations business.
A CRM or Customer Relationship Manager is a piece of software that your franchisees will use to run their day-to-day businesses. It helps them keep track of their customers, invoicing, accounts, appointments etc and a good CRM system will be an attractive selling point for the franchise. In recognition of the way we lead our home and business lives in 2014 it should be mobile friendly, allowing franchisees to use it wherever and whenever they need to. Don’t imagine that the way you do business now is the way it will be done in 2 or even 3 years’ time; invest in a decent system, work with good IT people (cloud-based systems are attractive and practical) and ‘future proof’ your CRM system as far as possible.
A CRM for the franchise business
This will manage your prospect enquiries, franchisees and even receive summary data from the franchisees’ CRM; as it will need to ‘talk’ to your operations system it makes sense if it comes from the same supplier.
IT equipment and support
It goes without saying you are going to need decent office technology and fast internet speeds. If you don’t have it in your town/village, consider how this will affect your growing business. Do you struggle to download large files now? If so, this could prove a real issue when you’re dealing with media images and brochures.
All the business lessons in the world will tell you to protect your data. Invest in systems that are backed up and safe; envisage yourself to be a big business and behave like one, from day one. Think about where you are now, where you want to be, and how you can scale-up in the process. Don’t start with a system that can’t grow with you.
Telephone and internet costs
Mobile phones are of course essential, you will need to be able to receive and reply to emails, texts and phone calls wherever you are in the world. At the start you will most likely be the only support system for your franchisees and they’ve paid a large amount of money for your support, expertise and advice, so it’s crucial you’re contactable if they need you.
Business insurance (for the franchise operation)
You can take out a ‘standard’ business insurance but the insurance industry hasn’t quite worked out that ‘franchise’ is a business category. When we set out we had to insure as a training business but soon found a broker who understood the franchisor risks and what sort of cover might be needed.
Taking on staff is always a challenge and you’ll have to assess your requirements and plan for this in your mid to long-term planning.
A qualified accountant and accounting system
One of the best early decisions we took was to appoint an accountant who handles all the franchisees and provides them with an online accounting system. I have met franchisors who are trying to make this happen with their established franchise network and change is always a challenge. It has paid dividends for us as the accountant fully understands the business and the on line system is outstanding (Xero), as I have complete access and overview to the franchisees accounts in ‘real time’.
Marketing and recruitment
Advertising (on and off-line), PR, seminars, exhibitions or specialist head-hunting. Whatever your proposed routes to market (and at first you should try everything) you need to be prepared to invest to find the right people.
Your recruitment may include a Discovery Day or meetings and these will involve costs such as man-power, refreshments and your time. You might decide to use psychometric testing, professional interviews or to travel to the potential franchisee’s location. Don’t forget to count these costs in your calculations. You’ll hear various figures are bandied about but you should be prepared to spend approximately £5000 to recruit each franchisee.
As your network grows so too will your costs. Depending on your model you could be visiting your franchisees in their territories up to three times a year. This means days out of the office, petrol, parking, wear and tear on your vehicle, hotel costs and meals out.
Most franchise businesses start from home but before long you may find yourself moving into an office in which case you are looking at rent, utility bills, phone lines, broadband etc.
In the job in which you have probably never worked harder in your life, at some point, you are going to want to pay yourself. After all, franchising is about a work-life balance and if you have no income that’s no balance at all.
The purpose of this list isn’t to frighten you into NOT franchising but help you to go into it with your eyes OPEN; I’ve met a number of people who have tried to combine setting up a new franchise alongside continuing to run their existing business and I have to say, it’s not easy. We have a relatively small business and admit we found it a huge challenge. The feeling of guilt when you take your focus off one business to deal with the other is like choosing between your children and has led to some fairly big challenges for my husband and I.
Learn from our mistakes
There are lots of ways to keep costs down and we definitely ‘wasted’ money finding out how best to do some things. There will always be errors in judgement but sometimes you have to ‘try before you buy’. There is not a one size fits all solution to, for example, marketing. If you can’t field a decent team of enthusiastic, high-energy exhibitors then don’t exhibit! If your business has a mass of competitors in the same industry then you have to differentiate yourself. We have to overcome the quirky nature of our business and help people to understand that there is a need and that an ability to sing ‘Chim-Chimeny’ is not required! Each of us faces a different set of challenges but being forewarned helps.
Seek the best advice
We chose to use an experienced franchise consultant who went a long way to guiding us into the right direction early on. This came with a hefty price tag but we are certain that the costs would have been far greater, given our lack of internal resources to research and define and the fact that we wanted to just get on with it, if we’d done it ourselves.
The Million Dollar question
Can you afford to franchise? It’s for you to decide but whatever you think it will cost, budget it and then add at least a 20% margin for the hidden costs. Don’t be put off – but be realistic and actively seek out franchisors from all industries, who will be willing to share their experiences with you.
Words by Louise Harris, the franchise director of Wilkins Chimney Sweep www.franchisechimneysweep.co.uk and the co chair of EWIF (Encouraging Women into Franchising)