You may already have seen the business guide, ‘How to expand your business, could franchising be the route to follow?' This guide takes the process further by looking at what you need to do to successfully franchise your business, and what advice you need to take.

The essential element to franchising your business effectively is to have a proven, successful concept that is working well as a business in its own right. Without this you are unlikely to have developed the detailed knowledge that a franchisee needs and has the right to know when joining your network. Franchising should not be seen as the testing ground for a brand new business idea.

By following these steps, you will have built a solid foundation for your franchise system, which will give it the best chance of succeeding. They appear in the most logical order, but in reality a number of them will overlap as the system develops.

Your business plan

This will underpin what you want your business to achieve, and as part of it you will need a comprehensive plan for your franchise. You need to consider how you will finance the following:

• research,
  
• pilot operation(s),
  
• support structure,
  
• recruitment process,
  
• design and development of the operations manual,
  
• legal agreement.

All of these costs will probably be incurred before you have selected your first franchisee. You will also need to have a long-term view of your growth plans, the operational structure of the business, and the future: for example, do you want to stick with the domestic market, or look overseas?

1. What do you do all day?

You need to collate the knowledge and experience you and your team have. This is the business, and if you are going to train other people to operate it, you need to know what to tell them. You’ll be surprised at how much that seems obvious to you might need to be written down for others to understand. This text will form the basis of your operations manual.

2. What are you going to franchise?

Depending on what your business does, you need to decide what the franchisee will do. For example, if you are a manufacturer, your franchisee could be your point of contact with the end user of your products; he or she could sell them through a retail site, or from a travelling showroom.

Alternatively, you may be offering a particular service, which the franchisees are going to replicate in their locality.

3. Pilot operation

Although you are already running a business, you need to make sure it will still operate at arm’s length.

This will act as a test of the franchise system. It’s up to you how many pilot sites/outlets you run, but at least one is essential. This needs to be operating for at least six months, longer if there is a seasonal element to the business. Lessons you learn from the pilot operation will need to be included in the operations manual. They may also make you reconsider whether franchising is the right way forward for your business.

4. Ongoing pilot

The marketplace for everyone’s business is constantly changing and evolving and as a franchisor you need to be aware of developments and how they will affect your business and that of your franchisees. The best way to monitor this is by having an in-house operation that does exactly the same as a franchised operation. This can also be used to test new ideas that could, in the future, be made available to all franchisees for their businesses; for example, new equipment or revised advertising material.

5. Operations manual

This is the blueprint for a franchisee to run their business. It needs to be comprehensive, setting out everything a franchisee and their staff need to know to run the business. It will also need to be regularly updated to give franchisees the best chance of success, and maintain the value of your brand.

Technology is helping to streamline this process, with many franchisors now having their manual available on a private, password-protected intranet.

6. Legal agreement

This governs the relationship between you and your franchisees and is an important source of protection for your business. Therefore it should be prepared by a lawyer who is experienced in franchising. It will contain numerous clauses including the length of the agreement, rights of renewal, obligations of the franchisee and franchisor, termination provisions and what happens in the event of the death, illness or incapacity of the franchisee.

7. Franchisee profile

You need to think about the type of franchisee you want to be working with. These may be existing businesses that are looking at new opportunities or private individuals who are setting up in business for the first time, but looking for a proven formula to help them get started. Selection of franchisees is critical, particularly in the early stages of the franchise system, as the initial franchisees will form the backbone of your system. Decide what skills you need them to have and develop a profile based on this.

8. Franchisee training

You need to decide what training your franchisees will need, how to train them and who will actually carry out the training.

9. Franchise investment costs

The amount of initial fee payable by the franchisee needs to be set, and also the level of ongoing payments from the franchisee to you. In addition the franchisee will usually pay the costs of establishing the outlet or operating unit.

The initial fee should not contain a significant profit element. Your return will come from ongoing fees which should increase with franchisee performance.

10. Finding franchisees

There are a number of ways of doing this. Specialist magazine advertising, national newspapers which run regular franchising features, franchise exhibitions and the Internet are all potential sources of good-quality candidates. You will need to produce a brochure outlining your system and what is expected from your franchisees, and also establish a recruitment process. Remember you are competing with other franchise systems who are also seeking good quality franchisees. If you need your franchisees to have certain specialist skills, then advertising in publications relevant to people with those skills may be more effective than going head-to-head with other franchisers at, for example, a franchise exhibition.

11. Franchise management and support staff

A key role in your network will be that of your franchise management team. They will usually be responsible for selecting franchisees, and providing the ongoing support and guidance that is essential for the franchisees to build their business. The support staff role will vary, but typically will include monitoring franchisee performance and reporting, carrying out credit control and providing technical advice for franchisees. Although it is difficult to generalise, usually one member of support staff is required for every 5-10 franchisees, depending on how complex your franchise system is.

Professional advice

If all the above seems daunting, then consider taking outside advice. This could be useful even if you have substantial resources within the business to look at projects like this and no matter how well you know your business. The advisers who are likely to be of the greatest value to you are those who have experience in franchising. The British Franchise Association has a list of affiliated advisors who you can select from.

Franchise consultant
Using a good franchise consultant will bring an extra perspective to your business in addition to specialist knowledge of franchising, and help you decide whether franchising is the right way ahead for you.

Always hold a ‘beauty parade’ of consultants, as you would with any advisor. Select only those who you feel you can work with comfortably, and who can give you examples of similar work they have done, including where they have recommended that franchising is not the best alternative for a business. Remember that cheapest may not necessarily be the best.

Accountant
Your own accountant should be able to help with the financial aspects. These will not only include your business plans, but also guidance for franchisees on what they could expect to achieve from a franchised outlet.

Solicitor
Legal advice is essential to protect your business, a comprehensive agreement will be necessary, and you may also need advice on registering your trade and service marks. By doing this you should increase the value of your trading name, and afford greater protection for you and your franchisees.

Useful contacts

We have a dedicated franchise team waiting to help you. To discuss any aspect of franchising, get in touch with us through your Business Manager. Alternatively, you can call the team on 0117 943 3089, email franchising@lloydstsb.co.uk or write to: Lloyds TSB Franchise Team, Business Banking, Canons House, PO Box 112, Bristol BS99 7LB.

We also provide information to help you with your franchising plans through our free publication, How to franchise your business. This has been put together in association with leading academics and professionals from the sector and offers clear, unbiased guidance on whether franchising is the right route for you.

If you decide to take your plans further, we will be happy to introduce you to experienced, professional advisors who can help you construct your franchise package. As your system develops, we can also discuss how to arrange the best types of finance for your franchisees.

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