Setting up a franchise network can be a fantastic way to rapidly expand a successful business concept while limiting your financial risk. However, there are a number of key practical and legal requirements for setting up a franchise that it is important to understand.
A commercial solicitor can help with everything from development and planning to dealing with commercial property for your franchise. They can provide the legal guidance needed to help you make your franchise network a success.
Below we will discuss what a franchise network is and six steps you should follow to successfully set up a franchise network.
What is a franchise network?
To put it simply, a franchise network is where an established business owner (the ‘franchisor’) licences their brand name, concept and other key features of their business to third parties (‘franchisees’) so they can set up their own businesses using the same model.
The franchisor and franchisee will enter into a franchise agreement that gives the franchisee the right to run their own business using the franchisor’s unique business strategies, products and name. The franchisee will normally pay an upfront cost and a percentage of their revenue to the franchisor.
How do you become a franchise?
When setting up a franchise network, there are several steps you will need to follow:
Step 1: Complete thorough research
The first, and potentially most important, step in building a franchise is research. You need to complete a self-evaluation to ensure that you are personally ready to commit to the work and many other challenging aspects of creating a franchise network.
You must be confident that your business model is one which other entrepreneurs will be interested in. Generally, franchisable businesses will have a unique selling point, be credible and have already shown a high return on investment.
Step 2: Building a business strategy
It’s important to understand how you will adapt your new business to work as a franchise. Setting both short-term and long-term goals can help you to manage your expectations and track the progression of the business.
You will need to ensure you are clear which elements of your business concept you are franchising and have clear guidance in place for franchisees e.g. on how branding is to be used, whether they will be tied to certain suppliers and how to maintain quality control.
Step 3: Consider what fee structure you will use
It is important to have chosen a fee structure for your franchise network. This most commonly involves franchisees paying you a percentage of their revenue but you could also set a fixed fee instead.
As the name suggests, a percentage fee will give the franchisor a chosen percentage of the business’s revenue. This fee structure allows the receiver to gain more income if the business is doing well but less if it is not.
In comparison, a fixed fee is a set amount that will be paid to the franchisor each month. The benefit of a consistent fee is that it’s easy to anticipate and plan for, yet it can be hard to decide on the amount of the fee without knowing the exact level of success the business franchise may have in the future.
Step 4: Funding
One of the key advantages of setting up a franchise network is that you do not necessarily need to use your own money or borrowing to fund expansion of your brand. Franchisees can be the ones taking on borrowing to fund their new franchise, meaning it is they who take on the financial risk.
However, some franchisors will lend some or all of the money to franchisees to help them get started. Whether or not to do this will depend on factors including your financial position and your appetite for risk, so it is important to take expert advice before making this decision.
Step 5: Brand protection
When allowing other people to become custodians of your brand, it is absolutely critical to take the right steps to protect that brand. Part of this is protecting your intellectual property, such as your brand name. You must make sure you have the right trade marks etc. in place and that the agreement to license your brand to franchisees is watertight.
The other thing you must also consider is protecting your brand reputation. Careless franchisees can cause serious harm to a brand by failing to maintain standards of product and service quality. You should have clear guidelines around these areas and good quality control measures, including regular inspections of franchisees’ operations.
Step 6: Contact a specialist franchise solicitor
When it comes to building a franchise network, having the guidance and legal advice of a franchise law specialist is invaluable.
Not only will a franchise solicitor be able to help you navigate through the many legal aspects of a franchise network, but they can also help you develop the necessary contracts and other legal documents you will require.
This will allow you to feel confident in your decisions, as well as giving you the opportunity to ask any questions you may have about the legal process.
What are the advantages of setting up a franchise in the UK?
Choosing to set up a franchise network can be incredibly beneficial. Here are just a few of the ways in which setting up a franchise can be advantages:
- Faster business growth – You can open new locations and expand into new markets much quicker because you don’t need to finance and run each new outlet yourself.
- Limited risks – Franchise networks don’t require you to borrow to expand or to take on other potential areas of risk, such as leases and employment agreements.
- Increased brand awareness – Getting your brand into more locations will boost its name recognition, with the potential to increase business at your own outlets.
- Increased customer loyalty – A franchise network makes it easier to attract and keep loyal customers as they can access your service more widely so have less need to use competitors.
- Individual management – This can help businesses to be more dynamic, without the need for each manager to navigate the full rules and regulations of a larger organisation.