91Ï㽶»ÆÉ«ÊÓƵ

If you have a successful business and are looking to expand, you might want to open additional outlets. Franchising your business can be a very effective way of doing this. Instead of financing and managing the new outlets yourself, you work with independent franchisees.

Business format franchising

With business format franchising, you put together a complete business package. You then licence this format to franchisees. They run their own businesses, but use your brand and proven business model:

• you provide an operations manual, detailing how to set up and manage a new outlet - see develop your franchise format
• you agree a contract with your franchisee setting out what rights and obligations you each have through the franchise agreement - see the franchise agreement for a franchisor
• the franchisee pays you franchise fees and royalties for the right to use your business concept
• you train and 91Ï㽶»ÆÉ«ÊÓƵ the franchisee through their start-up period - 91Ï㽶»ÆÉ«ÊÓƵ could include ongoing marketing, business growth help, regular regional meetings or how to negotiate purchasing contracts

Other franchising arrangements

This guide focuses specifically on business format franchising. However there are other business arrangements which are sometimes also referred to as franchising, including:

• selling a licence allowing someone else to manufacture and sell your product, but without telling them how to run their business
• using an agent, who sells your product on your behalf
• setting up a distribution agreement, whereby you sell your products to another business that then sells them to their own customers

For more information on using agents and distributors, see sales channels to reach your customers.

Franchising is an excellent way of expanding a business that is already successful. However, you should be aware that franchising is not suitable for every business.

Understanding the advantages and disadvantages of franchising will enable you to decide if franchising is a suitable option for your business expansion.

Advantages of franchising your business

Grow your business

Franchising your business can be a cost-effective way to grow your business. You will not have to cover the cost of investing in new premises or staff. Additional sales lead to additional profit and if you retain this in the business, in the long-term, you should have a saleable asset for your future.

Costs

Each franchisee finances their own franchise outlet. While the franchisee meets all the costs and collects the income, you receive franchise fees and royalties or a mark-up on products sold by the franchisee.

Easier management

he franchisees also run their businesses therefore reducing the management demands placed on you. The best franchisees will be highly motivated and have local expertise, making your life much easier.

Develop your brand

The more franchisees you have the better known your brand becomes. Your brand benefits from the capital investment of the franchisee.

Motivated franchisees

Franchisees are likely to be more motivated than a manager as they have a vested interest in the success of their business and therefore the success of your brand.

Purchasing power 

A larger business is more secure and additional turnover and profit can provide access to better deals for office equipment, vehicles and other business purchases.

Ideas for future success

Franchisees can contribute fresh ideas for the future success of the brand maybe outlining opportunities that you might not have identified otherwise.

Support from others

Being a business owner can be isolating so having a franchise network can offer 91Ï㽶»ÆÉ«ÊÓƵ and advice.

Disadvantages of franchising your business

Not a fix for a failing business

Franchising is not a solution to provide injections of capital from other people when a business is in difficulty. You should only go down the franchise route if you already have a successful business up and running.

Costs

Franchising your business will involve significant financial investment at the outset to get a successful franchise model in place for future growth of the business including investment in preparing legal documents, operations manuals, marketing materials and recruitment.

Time

Franchising will take a lot of time investment especially when initially setting up the franchise model. You will also have to take the time to ensure you attract the right franchisees and control what they do.

Training and 91Ï㽶»ÆÉ«ÊÓƵ

You will have to develop and deliver a suite of training and 91Ï㽶»ÆÉ«ÊÓƵ for your franchisees to successfully sell your brand. Businesses need to have systems and procedures in place that can be copied by most people to run a successful business.

Many businesses have used franchising successfully, including well-known names like McDonalds, Clarks Shoes, Domino's Pizza, Reeds Rains estate agencies, Thorntons, Subway, Toni & Guy, Costa coffee and the Zip Yard. However, franchising doesn't suit every business.

Successful business

To start with, your business needs to be successful. Nobody will want to buy the right to franchise a business that doesn't make money. A franchised business needs to be profitable enough to make money for both the franchisee and you.

Replicated in different locations

Your business needs to be one that can be replicated in different locations by your franchisees. Businesses that need high skills levels or professional qualifications can be more difficult to franchise but a number of major optician chains have succeeded in doing so.

An attractive franchise

At the same time, you need to offer your franchisees something that makes it worth their while paying you, instead of simply setting up their business independently. For example, you might have a recognised brand name, provide equipment or supplies they need, or help with training and marketing 91Ï㽶»ÆÉ«ÊÓƵ.

Having a well-organised and well-run franchise helps you recruit franchisees and is a strong incentive for franchisees to remain part of the franchise at the end of the initial franchise period.

It's worthwhile gaining an understanding of what franchisees look for when assessing opportunities to buy a franchise.

Your resources

You also need to think about the demands franchising places on you. You need to invest in developing and marketing the format. If you have limited financial resources, or are already working flat out running your business, you may not be able to do this.

Skills and motivation

Finally, you need to have the right skills and attitude to make franchising a success. You need to be able to sell your concept to potential franchisees, and to work with and control them. Rather than dealing directly with customers yourself, you profit by helping your franchisees to be successful.

To franchise your business, you need to convince potential franchisees that they will make money. Franchisees will want to see evidence that the business model is sound, that you deliver what you have committed to in the franchise agreement and that they can make a good living running a franchise. You do this by having a successful business, and an operations manual that shows how franchisees can replicate it.

Demonstrate demand for your product or service

Market testing is an important part of this. If you cannot prove that there is a demand for the product or service your franchisees will be offering, they will be doomed to failure.

If you can demonstrate a clear demand for your product and service, you then need to prove that the franchise model works through the establishment of a pilot franchise operation. The pilot franchise operation will establish that all the back-up systems including training, operating manuals, financial 91Ï㽶»ÆÉ«ÊÓƵ and marketing campaigns are effective. It will also give franchisees an indication of likely set-up costs, break-even points and how long it will take to become profitable.

Franchise operations manual

The franchise operations or operating manual gives detailed information on how to set up and manage a new outlet. It highlights key information such as:

• company information, key personnel and history
• identifying the franchisee's responsibilities
• how a franchisee sets up a franchise including staff recruitment and office equipment
• main operating requirements
• main management requirements
• how franchisees ensure quality and consistency within their franchise
• customer service standards
• performance reporting and benchmarks
• training and 91Ï㽶»ÆÉ«ÊÓƵ
• pricing, sales and marketing

The work involved in writing your is quite extensive. Read British Franchise Association .

Protecting your brand

Your brand is likely to be an important part of what you offer franchisees. Even if they know how to run a successful outlet, they stay with you because your brand helps them attract customers. Protecting your brand is essential. Read more on branding for your business.

It is important that you put in place relevant protections to prevent your intellectual property (IP) being infringed (for example by registering your trade marks and company name or obtaining patents for your products). Once you have adequate protections in place you can then benefit from licensing your intellectual property. It is also easier to protect your IP if it is registered and you can prove ownership.

When you franchise your business, you - the franchisor - enter into a legal agreement with the franchisee. A clear, written contract known as the franchise agreement is essential.

The sets out what rights and obligations you each have. Key issues include:

• what geographical location the franchisee can operate in and whether they have exclusive rights in that location
• what rights the franchisee has to use your intellectual property - eg your trade marks
• what restrictions there are on what the franchisee can do
• what fees the franchisee will pay
• how you will 91Ï㽶»ÆÉ«ÊÓƵ and train the franchisee initially
• what continuing 91Ï㽶»ÆÉ«ÊÓƵ you will provide - eg national marketing campaigns or administrative 91Ï㽶»ÆÉ«ÊÓƵ
• how long the franchise lasts and what happens at the end of the term
• what happens if either of you wants to end the agreement to an end or if you wnat to sell your business

Agreements tend to be in favour of the franchisor. However, if the agreement is too one-sided in the franchisor's favour, it will be difficult to attract potential franchisees.

Seek legal advice

Franchise agreements involve complex legal issues. You should take advice from a solicitor with franchising expertise. . You can also .

When you franchise your business, you make money from fees the franchisee pays you.

Initial franchise fees

You charge an initial fee for the purchase of the franchise. This fee contributes towards the costs you have in developing and marketing the franchise concept.

Most companies charge an initial fee, which can vary in cost. The fee is based on the cost of setting the franchisee up in business. This initial fee enables the franchisee to invest a larger percentage of their capital in setting up and developing the business.

Continuing franchise fees

Your profits come from the continuing fees that franchisees pay you. Typically, they pay a management service fee based on turnover. If you are supplying them with products or other supplies, you can also profit from the mark-up on the prices at which you sell to them. Both these methods give you a common interest: the more the franchisee sells, the more profits you both make.

Setting the right level of continuing fees requires careful judgement. If the fees are too high, the franchise will not be attractive to new franchisees and existing franchisees might struggle to keep going. Fees should be based on the services provided by the franchisor and the costs incurred in providing them.

You need to work out:

• How much is the loyalty fee?
• How often is it to be paid?
• Is it a percentage or fixed amount?
• If it is a percentage, what is this based on?
• How does it compare to other franchise systems?

Advertising and marketing fees

Advertising and marketing fees are also usually charged as a fixed percentage of the sales achieved by franchisees. These can range from 1 per cent to as much as 5 per cent of gross sales. These fees are used to fund the regional and national marketing, advertising and brand awareness initiatives that you carry out on behalf of your franchisees.

Your bank may have specialist franchising advisers who can work with you on your franchising business plan and the fees you plan to charge. You may also want to take from your accountant or a specialist consultant. See choose an accountant for your business.

You need to be realistic about how quickly you can grow your franchise. Although new franchisees usually provide the capital for their operations, you will be involved helping them set up. For example, you will have to run initial training, or provide hands-on 91Ï㽶»ÆÉ«ÊÓƵ when they first start trading.

This means that you may only be able to cope with one or two new franchisees at a time. You may also prefer new franchisees to be relatively nearby, making it easier to visit them. Many new franchising companies aim for a gradual roll out across the country in this way.

What to include in your franchise offering

Once you have decided what to offer franchises, you need to prepare a franchise prospectus or brochure and update your website. This tells potential franchisees what you are offering and what they can expect. It should include:

• an explanation of your product or service
• what franchise territories you are offering
• what the franchise fees are
• what financial returns the franchisee might expect
• information about your experience, franchise package, training, timescales, next steps and application form

Bear in mind that you are generally competing with other businesses to attract potential franchisees. At the same time, think carefully about what kinds of people you want to apply. They should have the finances needed to invest in the business, and the right management skills and attitude.

How to advertise and promote your franchise

To attract franchisees, you may want to:

• advertise in the business opportunities section of a newspaper or on a franchise website such as
• utilise social media channels to highlight your offering and engage with potential franchisees - read more on social media best practice for business
• become a member of the 
• recruit potential franchisees at 

Franchising your business isn't about selling franchises and then forgetting about them. You have a continuing relationship with your franchisees.

Providing 91Ï㽶»ÆÉ«ÊÓƵ to your franchisees

You must provide the 91Ï㽶»ÆÉ«ÊÓƵ detailed in the franchise agreement. This can include:

• helping them with initial set up of their franchise
• providing training in how to run the business
• running national promotional campaigns to increase sales
• helping them manage their business effectively
• innovating to keep your product or service ahead of the competition
• monitoring their performance and processes against the standards contained in the operations manual

Doing all this isn't just a matter of fulfilling your contractual obligations. By 91Ï㽶»ÆÉ«ÊÓƵing franchisees, especially ensuring they have a solid foundation of 91Ï㽶»ÆÉ«ÊÓƵ and training to prepare them for running the franchise, you help them succeed - and increase the fees you receive.

Motivating franchisees

Although it isn't included in the agreement, you also have a role to play in motivating franchisees. New franchisees can find the early months difficult and may become discouraged. Successful franchisees may reach their own comfort level and stop trying so hard to increase sales. Again, by motivating them you help yourself.

Encourage consistency from your franchisees

At the same time, you need to ensure that they are running their businesses the way they should. One of the keys to building a successful brand is consistency. If different franchisees run their businesses differently, your brand can suffer. Your operations manual should give clear information on the correct procedures.

Last but not least, you need efficient administration to ensure that you collect the right franchise fees.

Franchising can be a very effective way of growing your business.

Our top tips outline how you can successfully franchise your business:

1. Explore the options

There are a number of franchising options. The most popular route is business format franchising. This is when you put together a complete business package for a franchisee. Read more about franchising options.

2. Consider the advantages and disadvantages

Gain an understanding of the advantages and disadvantages of franchising. This will help you to decide if franchising is a suitable option to help you expand your business - see advantages and disadvantages of franchising your business.  

3. Market test your franchise format

To franchise your business, you need to convince potential franchisees that they will make money. A good way of proving that your franchise business model is sound is by market testing to show demand for your product or service. It is also advisable to test a pilot franchise operation to find out if your franchise model works. This will also give a franchisees a good indication of likely set-up costs, break-even points and how long it will take to become profitable.

4. Develop a franchise operations manual

A franchise operations manual should give detailed information on how to set up and manage a new outlet. It will highlight key information to help the franchisee establish their franchise outlet. The manual will help to ensure that quality and consistency is maintained. See develop your franchise format.

5. Produce a franchise agreement

A formal legal contract is one of the most important aspects when franchising your business. It will clearly set out the rights and obligations for both the franchisor and the franchisee. You should seek legal advice when drawing up your franchise agreement. See the franchise agreement for a franchisor.

6. Set your fees

When you franchise your business you will make money from the fees the franchisee pays you. You will normally charge an initial fee for the purchase of the franchise and then charge continuing fees. It is important that you set the right level of continuing fees. If the fees are too high the franchise will not be attractive to new franchisees and existing franchisees might struggle to keep operating. Find out about franchise fees and royalties.

7. Market your franchise

You should prepare a franchise prospectus or brochure to inform potential franchisees what you are offering and what they can expect. You should include details of your products or services, franchise territories, fees and financial returns. Read more on marketing your franchise opportunity.

8. Manage your franchisees

Franchising your business isn't about selling franchises and then forgetting about them. You must maintain a continuing relationship with your franchisees. You should provide ongoing 91Ï㽶»ÆÉ«ÊÓƵ to your franchisees and help motivate them to sell your products and services. See managing your franchisees.

For further information see our guidance on franchise your business and our video case study turning my business into a franchise - the Zip Yard (video).

If you have a successful business and are looking to expand, you might want to open additional outlets. Franchising your business can be a very effective way of doing this. Instead of financing and managing the new outlets yourself, you work with independent franchisees.

Business format franchising

With business format franchising, you put together a complete business package. You then licence this format to franchisees. They run their own businesses, but use your brand and proven business model:

• you provide an operations manual, detailing how to set up and manage a new outlet - see develop your franchise format
• you agree a contract with your franchisee setting out what rights and obligations you each have through the franchise agreement - see the franchise agreement for a franchisor
• the franchisee pays you franchise fees and royalties for the right to use your business concept
• you train and 91Ï㽶»ÆÉ«ÊÓƵ the franchisee through their start-up period - 91Ï㽶»ÆÉ«ÊÓƵ could include ongoing marketing, business growth help, regular regional meetings or how to negotiate purchasing contracts

Other franchising arrangements

This guide focuses specifically on business format franchising. However there are other business arrangements which are sometimes also referred to as franchising, including:

• selling a licence allowing someone else to manufacture and sell your product, but without telling them how to run their business
• using an agent, who sells your product on your behalf
• setting up a distribution agreement, whereby you sell your products to another business that then sells them to their own customers

For more information on using agents and distributors, see sales channels to reach your customers.

Franchising is an excellent way of expanding a business that is already successful. However, you should be aware that franchising is not suitable for every business.

Understanding the advantages and disadvantages of franchising will enable you to decide if franchising is a suitable option for your business expansion.

Advantages of franchising your business

Grow your business

Franchising your business can be a cost-effective way to grow your business. You will not have to cover the cost of investing in new premises or staff. Additional sales lead to additional profit and if you retain this in the business, in the long-term, you should have a saleable asset for your future.

Costs

Each franchisee finances their own franchise outlet. While the franchisee meets all the costs and collects the income, you receive franchise fees and royalties or a mark-up on products sold by the franchisee.

Easier management

he franchisees also run their businesses therefore reducing the management demands placed on you. The best franchisees will be highly motivated and have local expertise, making your life much easier.

Develop your brand

The more franchisees you have the better known your brand becomes. Your brand benefits from the capital investment of the franchisee.

Motivated franchisees

Franchisees are likely to be more motivated than a manager as they have a vested interest in the success of their business and therefore the success of your brand.

Purchasing power 

A larger business is more secure and additional turnover and profit can provide access to better deals for office equipment, vehicles and other business purchases.

Ideas for future success

Franchisees can contribute fresh ideas for the future success of the brand maybe outlining opportunities that you might not have identified otherwise.

Support from others

Being a business owner can be isolating so having a franchise network can offer 91Ï㽶»ÆÉ«ÊÓƵ and advice.

Disadvantages of franchising your business

Not a fix for a failing business

Franchising is not a solution to provide injections of capital from other people when a business is in difficulty. You should only go down the franchise route if you already have a successful business up and running.

Costs

Franchising your business will involve significant financial investment at the outset to get a successful franchise model in place for future growth of the business including investment in preparing legal documents, operations manuals, marketing materials and recruitment.

Time

Franchising will take a lot of time investment especially when initially setting up the franchise model. You will also have to take the time to ensure you attract the right franchisees and control what they do.

Training and 91Ï㽶»ÆÉ«ÊÓƵ

You will have to develop and deliver a suite of training and 91Ï㽶»ÆÉ«ÊÓƵ for your franchisees to successfully sell your brand. Businesses need to have systems and procedures in place that can be copied by most people to run a successful business.

Many businesses have used franchising successfully, including well-known names like McDonalds, Clarks Shoes, Domino's Pizza, Reeds Rains estate agencies, Thorntons, Subway, Toni & Guy, Costa coffee and the Zip Yard. However, franchising doesn't suit every business.

Successful business

To start with, your business needs to be successful. Nobody will want to buy the right to franchise a business that doesn't make money. A franchised business needs to be profitable enough to make money for both the franchisee and you.

Replicated in different locations

Your business needs to be one that can be replicated in different locations by your franchisees. Businesses that need high skills levels or professional qualifications can be more difficult to franchise but a number of major optician chains have succeeded in doing so.

An attractive franchise

At the same time, you need to offer your franchisees something that makes it worth their while paying you, instead of simply setting up their business independently. For example, you might have a recognised brand name, provide equipment or supplies they need, or help with training and marketing 91Ï㽶»ÆÉ«ÊÓƵ.

Having a well-organised and well-run franchise helps you recruit franchisees and is a strong incentive for franchisees to remain part of the franchise at the end of the initial franchise period.

It's worthwhile gaining an understanding of what franchisees look for when assessing opportunities to buy a franchise.

Your resources

You also need to think about the demands franchising places on you. You need to invest in developing and marketing the format. If you have limited financial resources, or are already working flat out running your business, you may not be able to do this.

Skills and motivation

Finally, you need to have the right skills and attitude to make franchising a success. You need to be able to sell your concept to potential franchisees, and to work with and control them. Rather than dealing directly with customers yourself, you profit by helping your franchisees to be successful.

To franchise your business, you need to convince potential franchisees that they will make money. Franchisees will want to see evidence that the business model is sound, that you deliver what you have committed to in the franchise agreement and that they can make a good living running a franchise. You do this by having a successful business, and an operations manual that shows how franchisees can replicate it.

Demonstrate demand for your product or service

Market testing is an important part of this. If you cannot prove that there is a demand for the product or service your franchisees will be offering, they will be doomed to failure.

If you can demonstrate a clear demand for your product and service, you then need to prove that the franchise model works through the establishment of a pilot franchise operation. The pilot franchise operation will establish that all the back-up systems including training, operating manuals, financial 91Ï㽶»ÆÉ«ÊÓƵ and marketing campaigns are effective. It will also give franchisees an indication of likely set-up costs, break-even points and how long it will take to become profitable.

Franchise operations manual

The franchise operations or operating manual gives detailed information on how to set up and manage a new outlet. It highlights key information such as:

• company information, key personnel and history
• identifying the franchisee's responsibilities
• how a franchisee sets up a franchise including staff recruitment and office equipment
• main operating requirements
• main management requirements
• how franchisees ensure quality and consistency within their franchise
• customer service standards
• performance reporting and benchmarks
• training and 91Ï㽶»ÆÉ«ÊÓƵ
• pricing, sales and marketing

The work involved in writing your is quite extensive. Read British Franchise Association .

Protecting your brand

Your brand is likely to be an important part of what you offer franchisees. Even if they know how to run a successful outlet, they stay with you because your brand helps them attract customers. Protecting your brand is essential. Read more on branding for your business.

It is important that you put in place relevant protections to prevent your intellectual property (IP) being infringed (for example by registering your trade marks and company name or obtaining patents for your products). Once you have adequate protections in place you can then benefit from licensing your intellectual property. It is also easier to protect your IP if it is registered and you can prove ownership.

When you franchise your business, you - the franchisor - enter into a legal agreement with the franchisee. A clear, written contract known as the franchise agreement is essential.

The sets out what rights and obligations you each have. Key issues include:

• what geographical location the franchisee can operate in and whether they have exclusive rights in that location
• what rights the franchisee has to use your intellectual property - eg your trade marks
• what restrictions there are on what the franchisee can do
• what fees the franchisee will pay
• how you will 91Ï㽶»ÆÉ«ÊÓƵ and train the franchisee initially
• what continuing 91Ï㽶»ÆÉ«ÊÓƵ you will provide - eg national marketing campaigns or administrative 91Ï㽶»ÆÉ«ÊÓƵ
• how long the franchise lasts and what happens at the end of the term
• what happens if either of you wants to end the agreement to an end or if you wnat to sell your business

Agreements tend to be in favour of the franchisor. However, if the agreement is too one-sided in the franchisor's favour, it will be difficult to attract potential franchisees.

Seek legal advice

Franchise agreements involve complex legal issues. You should take advice from a solicitor with franchising expertise. . You can also .

When you franchise your business, you make money from fees the franchisee pays you.

Initial franchise fees

You charge an initial fee for the purchase of the franchise. This fee contributes towards the costs you have in developing and marketing the franchise concept.

Most companies charge an initial fee, which can vary in cost. The fee is based on the cost of setting the franchisee up in business. This initial fee enables the franchisee to invest a larger percentage of their capital in setting up and developing the business.

Continuing franchise fees

Your profits come from the continuing fees that franchisees pay you. Typically, they pay a management service fee based on turnover. If you are supplying them with products or other supplies, you can also profit from the mark-up on the prices at which you sell to them. Both these methods give you a common interest: the more the franchisee sells, the more profits you both make.

Setting the right level of continuing fees requires careful judgement. If the fees are too high, the franchise will not be attractive to new franchisees and existing franchisees might struggle to keep going. Fees should be based on the services provided by the franchisor and the costs incurred in providing them.

You need to work out:

• How much is the loyalty fee?
• How often is it to be paid?
• Is it a percentage or fixed amount?
• If it is a percentage, what is this based on?
• How does it compare to other franchise systems?

Advertising and marketing fees

Advertising and marketing fees are also usually charged as a fixed percentage of the sales achieved by franchisees. These can range from 1 per cent to as much as 5 per cent of gross sales. These fees are used to fund the regional and national marketing, advertising and brand awareness initiatives that you carry out on behalf of your franchisees.

Your bank may have specialist franchising advisers who can work with you on your franchising business plan and the fees you plan to charge. You may also want to take from your accountant or a specialist consultant. See choose an accountant for your business.

You need to be realistic about how quickly you can grow your franchise. Although new franchisees usually provide the capital for their operations, you will be involved helping them set up. For example, you will have to run initial training, or provide hands-on 91Ï㽶»ÆÉ«ÊÓƵ when they first start trading.

This means that you may only be able to cope with one or two new franchisees at a time. You may also prefer new franchisees to be relatively nearby, making it easier to visit them. Many new franchising companies aim for a gradual roll out across the country in this way.

What to include in your franchise offering

Once you have decided what to offer franchises, you need to prepare a franchise prospectus or brochure and update your website. This tells potential franchisees what you are offering and what they can expect. It should include:

• an explanation of your product or service
• what franchise territories you are offering
• what the franchise fees are
• what financial returns the franchisee might expect
• information about your experience, franchise package, training, timescales, next steps and application form

Bear in mind that you are generally competing with other businesses to attract potential franchisees. At the same time, think carefully about what kinds of people you want to apply. They should have the finances needed to invest in the business, and the right management skills and attitude.

How to advertise and promote your franchise

To attract franchisees, you may want to:

• advertise in the business opportunities section of a newspaper or on a franchise website such as
• utilise social media channels to highlight your offering and engage with potential franchisees - read more on social media best practice for business
• become a member of the 
• recruit potential franchisees at 

Franchising your business isn't about selling franchises and then forgetting about them. You have a continuing relationship with your franchisees.

Providing 91Ï㽶»ÆÉ«ÊÓƵ to your franchisees

You must provide the 91Ï㽶»ÆÉ«ÊÓƵ detailed in the franchise agreement. This can include:

• helping them with initial set up of their franchise
• providing training in how to run the business
• running national promotional campaigns to increase sales
• helping them manage their business effectively
• innovating to keep your product or service ahead of the competition
• monitoring their performance and processes against the standards contained in the operations manual

Doing all this isn't just a matter of fulfilling your contractual obligations. By 91Ï㽶»ÆÉ«ÊÓƵing franchisees, especially ensuring they have a solid foundation of 91Ï㽶»ÆÉ«ÊÓƵ and training to prepare them for running the franchise, you help them succeed - and increase the fees you receive.

Motivating franchisees

Although it isn't included in the agreement, you also have a role to play in motivating franchisees. New franchisees can find the early months difficult and may become discouraged. Successful franchisees may reach their own comfort level and stop trying so hard to increase sales. Again, by motivating them you help yourself.

Encourage consistency from your franchisees

At the same time, you need to ensure that they are running their businesses the way they should. One of the keys to building a successful brand is consistency. If different franchisees run their businesses differently, your brand can suffer. Your operations manual should give clear information on the correct procedures.

Last but not least, you need efficient administration to ensure that you collect the right franchise fees.

Franchising can be a very effective way of growing your business.

Our top tips outline how you can successfully franchise your business:

1. Explore the options

There are a number of franchising options. The most popular route is business format franchising. This is when you put together a complete business package for a franchisee. Read more about franchising options.

2. Consider the advantages and disadvantages

Gain an understanding of the advantages and disadvantages of franchising. This will help you to decide if franchising is a suitable option to help you expand your business - see advantages and disadvantages of franchising your business.  

3. Market test your franchise format

To franchise your business, you need to convince potential franchisees that they will make money. A good way of proving that your franchise business model is sound is by market testing to show demand for your product or service. It is also advisable to test a pilot franchise operation to find out if your franchise model works. This will also give a franchisees a good indication of likely set-up costs, break-even points and how long it will take to become profitable.

4. Develop a franchise operations manual

A franchise operations manual should give detailed information on how to set up and manage a new outlet. It will highlight key information to help the franchisee establish their franchise outlet. The manual will help to ensure that quality and consistency is maintained. See develop your franchise format.

5. Produce a franchise agreement

A formal legal contract is one of the most important aspects when franchising your business. It will clearly set out the rights and obligations for both the franchisor and the franchisee. You should seek legal advice when drawing up your franchise agreement. See the franchise agreement for a franchisor.

6. Set your fees

When you franchise your business you will make money from the fees the franchisee pays you. You will normally charge an initial fee for the purchase of the franchise and then charge continuing fees. It is important that you set the right level of continuing fees. If the fees are too high the franchise will not be attractive to new franchisees and existing franchisees might struggle to keep operating. Find out about franchise fees and royalties.

7. Market your franchise

You should prepare a franchise prospectus or brochure to inform potential franchisees what you are offering and what they can expect. You should include details of your products or services, franchise territories, fees and financial returns. Read more on marketing your franchise opportunity.

8. Manage your franchisees

Franchising your business isn't about selling franchises and then forgetting about them. You must maintain a continuing relationship with your franchisees. You should provide ongoing 91Ï㽶»ÆÉ«ÊÓƵ to your franchisees and help motivate them to sell your products and services. See managing your franchisees.

For further information see our guidance on franchise your business and our video case study turning my business into a franchise - the Zip Yard (video).

If you have a successful business and are looking to expand, you might want to open additional outlets. Franchising your business can be a very effective way of doing this. Instead of financing and managing the new outlets yourself, you work with independent franchisees.

Business format franchising

With business format franchising, you put together a complete business package. You then licence this format to franchisees. They run their own businesses, but use your brand and proven business model:

• you provide an operations manual, detailing how to set up and manage a new outlet - see develop your franchise format
• you agree a contract with your franchisee setting out what rights and obligations you each have through the franchise agreement - see the franchise agreement for a franchisor
• the franchisee pays you franchise fees and royalties for the right to use your business concept
• you train and 91Ï㽶»ÆÉ«ÊÓƵ the franchisee through their start-up period - 91Ï㽶»ÆÉ«ÊÓƵ could include ongoing marketing, business growth help, regular regional meetings or how to negotiate purchasing contracts

Other franchising arrangements

This guide focuses specifically on business format franchising. However there are other business arrangements which are sometimes also referred to as franchising, including:

• selling a licence allowing someone else to manufacture and sell your product, but without telling them how to run their business
• using an agent, who sells your product on your behalf
• setting up a distribution agreement, whereby you sell your products to another business that then sells them to their own customers

For more information on using agents and distributors, see sales channels to reach your customers.

Franchising is an excellent way of expanding a business that is already successful. However, you should be aware that franchising is not suitable for every business.

Understanding the advantages and disadvantages of franchising will enable you to decide if franchising is a suitable option for your business expansion.

Advantages of franchising your business

Grow your business

Franchising your business can be a cost-effective way to grow your business. You will not have to cover the cost of investing in new premises or staff. Additional sales lead to additional profit and if you retain this in the business, in the long-term, you should have a saleable asset for your future.

Costs

Each franchisee finances their own franchise outlet. While the franchisee meets all the costs and collects the income, you receive franchise fees and royalties or a mark-up on products sold by the franchisee.

Easier management

he franchisees also run their businesses therefore reducing the management demands placed on you. The best franchisees will be highly motivated and have local expertise, making your life much easier.

Develop your brand

The more franchisees you have the better known your brand becomes. Your brand benefits from the capital investment of the franchisee.

Motivated franchisees

Franchisees are likely to be more motivated than a manager as they have a vested interest in the success of their business and therefore the success of your brand.

Purchasing power 

A larger business is more secure and additional turnover and profit can provide access to better deals for office equipment, vehicles and other business purchases.

Ideas for future success

Franchisees can contribute fresh ideas for the future success of the brand maybe outlining opportunities that you might not have identified otherwise.

Support from others

Being a business owner can be isolating so having a franchise network can offer 91Ï㽶»ÆÉ«ÊÓƵ and advice.

Disadvantages of franchising your business

Not a fix for a failing business

Franchising is not a solution to provide injections of capital from other people when a business is in difficulty. You should only go down the franchise route if you already have a successful business up and running.

Costs

Franchising your business will involve significant financial investment at the outset to get a successful franchise model in place for future growth of the business including investment in preparing legal documents, operations manuals, marketing materials and recruitment.

Time

Franchising will take a lot of time investment especially when initially setting up the franchise model. You will also have to take the time to ensure you attract the right franchisees and control what they do.

Training and 91Ï㽶»ÆÉ«ÊÓƵ

You will have to develop and deliver a suite of training and 91Ï㽶»ÆÉ«ÊÓƵ for your franchisees to successfully sell your brand. Businesses need to have systems and procedures in place that can be copied by most people to run a successful business.

Many businesses have used franchising successfully, including well-known names like McDonalds, Clarks Shoes, Domino's Pizza, Reeds Rains estate agencies, Thorntons, Subway, Toni & Guy, Costa coffee and the Zip Yard. However, franchising doesn't suit every business.

Successful business

To start with, your business needs to be successful. Nobody will want to buy the right to franchise a business that doesn't make money. A franchised business needs to be profitable enough to make money for both the franchisee and you.

Replicated in different locations

Your business needs to be one that can be replicated in different locations by your franchisees. Businesses that need high skills levels or professional qualifications can be more difficult to franchise but a number of major optician chains have succeeded in doing so.

An attractive franchise

At the same time, you need to offer your franchisees something that makes it worth their while paying you, instead of simply setting up their business independently. For example, you might have a recognised brand name, provide equipment or supplies they need, or help with training and marketing 91Ï㽶»ÆÉ«ÊÓƵ.

Having a well-organised and well-run franchise helps you recruit franchisees and is a strong incentive for franchisees to remain part of the franchise at the end of the initial franchise period.

It's worthwhile gaining an understanding of what franchisees look for when assessing opportunities to buy a franchise.

Your resources

You also need to think about the demands franchising places on you. You need to invest in developing and marketing the format. If you have limited financial resources, or are already working flat out running your business, you may not be able to do this.

Skills and motivation

Finally, you need to have the right skills and attitude to make franchising a success. You need to be able to sell your concept to potential franchisees, and to work with and control them. Rather than dealing directly with customers yourself, you profit by helping your franchisees to be successful.

To franchise your business, you need to convince potential franchisees that they will make money. Franchisees will want to see evidence that the business model is sound, that you deliver what you have committed to in the franchise agreement and that they can make a good living running a franchise. You do this by having a successful business, and an operations manual that shows how franchisees can replicate it.

Demonstrate demand for your product or service

Market testing is an important part of this. If you cannot prove that there is a demand for the product or service your franchisees will be offering, they will be doomed to failure.

If you can demonstrate a clear demand for your product and service, you then need to prove that the franchise model works through the establishment of a pilot franchise operation. The pilot franchise operation will establish that all the back-up systems including training, operating manuals, financial 91Ï㽶»ÆÉ«ÊÓƵ and marketing campaigns are effective. It will also give franchisees an indication of likely set-up costs, break-even points and how long it will take to become profitable.

Franchise operations manual

The franchise operations or operating manual gives detailed information on how to set up and manage a new outlet. It highlights key information such as:

• company information, key personnel and history
• identifying the franchisee's responsibilities
• how a franchisee sets up a franchise including staff recruitment and office equipment
• main operating requirements
• main management requirements
• how franchisees ensure quality and consistency within their franchise
• customer service standards
• performance reporting and benchmarks
• training and 91Ï㽶»ÆÉ«ÊÓƵ
• pricing, sales and marketing

The work involved in writing your is quite extensive. Read British Franchise Association .

Protecting your brand

Your brand is likely to be an important part of what you offer franchisees. Even if they know how to run a successful outlet, they stay with you because your brand helps them attract customers. Protecting your brand is essential. Read more on branding for your business.

It is important that you put in place relevant protections to prevent your intellectual property (IP) being infringed (for example by registering your trade marks and company name or obtaining patents for your products). Once you have adequate protections in place you can then benefit from licensing your intellectual property. It is also easier to protect your IP if it is registered and you can prove ownership.

When you franchise your business, you - the franchisor - enter into a legal agreement with the franchisee. A clear, written contract known as the franchise agreement is essential.

The sets out what rights and obligations you each have. Key issues include:

• what geographical location the franchisee can operate in and whether they have exclusive rights in that location
• what rights the franchisee has to use your intellectual property - eg your trade marks
• what restrictions there are on what the franchisee can do
• what fees the franchisee will pay
• how you will 91Ï㽶»ÆÉ«ÊÓƵ and train the franchisee initially
• what continuing 91Ï㽶»ÆÉ«ÊÓƵ you will provide - eg national marketing campaigns or administrative 91Ï㽶»ÆÉ«ÊÓƵ
• how long the franchise lasts and what happens at the end of the term
• what happens if either of you wants to end the agreement to an end or if you wnat to sell your business

Agreements tend to be in favour of the franchisor. However, if the agreement is too one-sided in the franchisor's favour, it will be difficult to attract potential franchisees.

Seek legal advice

Franchise agreements involve complex legal issues. You should take advice from a solicitor with franchising expertise. . You can also .

When you franchise your business, you make money from fees the franchisee pays you.

Initial franchise fees

You charge an initial fee for the purchase of the franchise. This fee contributes towards the costs you have in developing and marketing the franchise concept.

Most companies charge an initial fee, which can vary in cost. The fee is based on the cost of setting the franchisee up in business. This initial fee enables the franchisee to invest a larger percentage of their capital in setting up and developing the business.

Continuing franchise fees

Your profits come from the continuing fees that franchisees pay you. Typically, they pay a management service fee based on turnover. If you are supplying them with products or other supplies, you can also profit from the mark-up on the prices at which you sell to them. Both these methods give you a common interest: the more the franchisee sells, the more profits you both make.

Setting the right level of continuing fees requires careful judgement. If the fees are too high, the franchise will not be attractive to new franchisees and existing franchisees might struggle to keep going. Fees should be based on the services provided by the franchisor and the costs incurred in providing them.

You need to work out:

• How much is the loyalty fee?
• How often is it to be paid?
• Is it a percentage or fixed amount?
• If it is a percentage, what is this based on?
• How does it compare to other franchise systems?

Advertising and marketing fees

Advertising and marketing fees are also usually charged as a fixed percentage of the sales achieved by franchisees. These can range from 1 per cent to as much as 5 per cent of gross sales. These fees are used to fund the regional and national marketing, advertising and brand awareness initiatives that you carry out on behalf of your franchisees.

Your bank may have specialist franchising advisers who can work with you on your franchising business plan and the fees you plan to charge. You may also want to take from your accountant or a specialist consultant. See choose an accountant for your business.

You need to be realistic about how quickly you can grow your franchise. Although new franchisees usually provide the capital for their operations, you will be involved helping them set up. For example, you will have to run initial training, or provide hands-on 91Ï㽶»ÆÉ«ÊÓƵ when they first start trading.

This means that you may only be able to cope with one or two new franchisees at a time. You may also prefer new franchisees to be relatively nearby, making it easier to visit them. Many new franchising companies aim for a gradual roll out across the country in this way.

What to include in your franchise offering

Once you have decided what to offer franchises, you need to prepare a franchise prospectus or brochure and update your website. This tells potential franchisees what you are offering and what they can expect. It should include:

• an explanation of your product or service
• what franchise territories you are offering
• what the franchise fees are
• what financial returns the franchisee might expect
• information about your experience, franchise package, training, timescales, next steps and application form

Bear in mind that you are generally competing with other businesses to attract potential franchisees. At the same time, think carefully about what kinds of people you want to apply. They should have the finances needed to invest in the business, and the right management skills and attitude.

How to advertise and promote your franchise

To attract franchisees, you may want to:

• advertise in the business opportunities section of a newspaper or on a franchise website such as
• utilise social media channels to highlight your offering and engage with potential franchisees - read more on social media best practice for business
• become a member of the 
• recruit potential franchisees at 

Franchising your business isn't about selling franchises and then forgetting about them. You have a continuing relationship with your franchisees.

Providing 91Ï㽶»ÆÉ«ÊÓƵ to your franchisees

You must provide the 91Ï㽶»ÆÉ«ÊÓƵ detailed in the franchise agreement. This can include:

• helping them with initial set up of their franchise
• providing training in how to run the business
• running national promotional campaigns to increase sales
• helping them manage their business effectively
• innovating to keep your product or service ahead of the competition
• monitoring their performance and processes against the standards contained in the operations manual

Doing all this isn't just a matter of fulfilling your contractual obligations. By 91Ï㽶»ÆÉ«ÊÓƵing franchisees, especially ensuring they have a solid foundation of 91Ï㽶»ÆÉ«ÊÓƵ and training to prepare them for running the franchise, you help them succeed - and increase the fees you receive.

Motivating franchisees

Although it isn't included in the agreement, you also have a role to play in motivating franchisees. New franchisees can find the early months difficult and may become discouraged. Successful franchisees may reach their own comfort level and stop trying so hard to increase sales. Again, by motivating them you help yourself.

Encourage consistency from your franchisees

At the same time, you need to ensure that they are running their businesses the way they should. One of the keys to building a successful brand is consistency. If different franchisees run their businesses differently, your brand can suffer. Your operations manual should give clear information on the correct procedures.

Last but not least, you need efficient administration to ensure that you collect the right franchise fees.

Franchising can be a very effective way of growing your business.

Our top tips outline how you can successfully franchise your business:

1. Explore the options

There are a number of franchising options. The most popular route is business format franchising. This is when you put together a complete business package for a franchisee. Read more about franchising options.

2. Consider the advantages and disadvantages

Gain an understanding of the advantages and disadvantages of franchising. This will help you to decide if franchising is a suitable option to help you expand your business - see advantages and disadvantages of franchising your business.  

3. Market test your franchise format

To franchise your business, you need to convince potential franchisees that they will make money. A good way of proving that your franchise business model is sound is by market testing to show demand for your product or service. It is also advisable to test a pilot franchise operation to find out if your franchise model works. This will also give a franchisees a good indication of likely set-up costs, break-even points and how long it will take to become profitable.

4. Develop a franchise operations manual

A franchise operations manual should give detailed information on how to set up and manage a new outlet. It will highlight key information to help the franchisee establish their franchise outlet. The manual will help to ensure that quality and consistency is maintained. See develop your franchise format.

5. Produce a franchise agreement

A formal legal contract is one of the most important aspects when franchising your business. It will clearly set out the rights and obligations for both the franchisor and the franchisee. You should seek legal advice when drawing up your franchise agreement. See the franchise agreement for a franchisor.

6. Set your fees

When you franchise your business you will make money from the fees the franchisee pays you. You will normally charge an initial fee for the purchase of the franchise and then charge continuing fees. It is important that you set the right level of continuing fees. If the fees are too high the franchise will not be attractive to new franchisees and existing franchisees might struggle to keep operating. Find out about franchise fees and royalties.

7. Market your franchise

You should prepare a franchise prospectus or brochure to inform potential franchisees what you are offering and what they can expect. You should include details of your products or services, franchise territories, fees and financial returns. Read more on marketing your franchise opportunity.

8. Manage your franchisees

Franchising your business isn't about selling franchises and then forgetting about them. You must maintain a continuing relationship with your franchisees. You should provide ongoing 91Ï㽶»ÆÉ«ÊÓƵ to your franchisees and help motivate them to sell your products and services. See managing your franchisees.

For further information see our guidance on franchise your business and our video case study turning my business into a franchise - the Zip Yard (video).