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To franchise or not to franchise: What should a business consider before taking the leap?

Xero

Mar 21, 2024

Dive into the world of franchising in this Q&A with Lime Licensing’s CEO, Andy Cheetham, as he shares his expertise, insights, and advice for businesses looking to franchise. 

How can a business determine if its model is suitable for franchising? 

Franchising is all about replication. If your current business can create a clone of itself in another location then it’s likely that your clone could be a franchise, provided it can be profitable of course! 

I like to see a business that has gone through its learning curve already, and whilst no business is ever the finished article, a bonafide franchise should be a developed format that has already got most of the wrinkles ironed out of it.

What are the legal considerations businesses need to be aware of when venturing into franchising? 

At Lime Licensing Group we concentrate on Intellectual Property first, and get that in the right hands at the outset. Then there’s confidentiality agreements, deposit agreements for franchisees who wish to secure a franchise option, franchise agreements to lay out the terms of engagement, and sometimes other supporting legals from side letters, through to development or master agreements. 

What financial factors should businesses evaluate before deciding to franchise? 

Businesses that are ready to scale have three options.The first is growing organically, the second is growing through acquisition, and third is scaling through franchising or licensing. A savvy potential franchisor will have considered the relevant capital requirement of each before choosing franchising. Assuming that they then progress as franchisors, what matters above all else is that the franchise owner’s business can be profitable with territorial restrictions in place and the presence of a royalty. 

In simple terms, a new franchisor should ask themselves if they could replicate what they are doing in a defined region, and with a discount off their net VAT turnover of at least 10%. If the answer to both of these is yes, then franchising is a possibility. A new franchisor can get a 100% return on investment with the sale of the first franchise, so the business case  is extremely viable.

How can a franchisor provide ongoing support to maintain consistency across franchise locations? 

Franchisors should inspect what they expect. I am used to seeing franchisors trying to manage everything in-house, but often external suppliers can do just as good a job. Either way, the rules of engagement are set out in each franchisee’s operational manual and then it’s the job of the franchisor to ensure that standards of delivery from franchisee to customer are consistent with the guidelines.

How can businesses tailor their marketing strategies to promote their franchise model? 

By keeping the characteristics and core brand message, a new franchisor can focus on how best to convey the business opportunity of joining them. Most owner operator franchise buyers are in a career change, so existing contacts might not be the best place to roll out franchise marketing. At Lime Licensing Group we have around 50 different media channels that can work. It’s always a challenge to determine which media or strategy will generate franchise enquiries, but that’s something we as consultants can help new franchisors with.

How can a business ensure that potential franchisees align with the brand and values? 

We never sell franchises over zoom or the telephone alone. Instead we aim to get them into the environment they may be working in and interacting with clients at some level. If you’re a care based business, can you set something up to observe them in a care environment? HQ visits can work well too and we have a number of clients who do psychometric tests to supplement their judgement. 

How should businesses conduct market analysis to identify potential franchise locations? 

Any good franchisor knows how to assess a new region or criteria for a new outlet, but it’s important that the franchisee ensures a satisfactory commercial environment exists in the proposed area. So they need to find the competition they might encounter. This results in new franchisees being proactive and showing the franchisor they understand that in many cases, due to their proximity to their actual franchise, that they are best placed to find a location or assess local demand for a product or service. 

How can technology be leveraged to streamline franchise operations? 

Unified technology – both hardware and  software is always beneficial. It makes support , implementation, and upgrades easier. Having everyone using the same tech results in consistency whether it’s the CRM, bookkeeping software like Xero, or POS Systems for retail. 

Franchising is a strategic leap that requires meticulous planning. Assess your business readiness, establish a robust system, navigate legalities, and prioritise transparent communication with franchisees. Success hinges on adaptability and a commitment to excellence. To find out more about how Xero can help you on your franchising journey, visit our dedicated franchising homepage here.

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