How to set up a franchise operation

Just because you run a sound, profitable business, doesn't mean you can franchise it.

Being sound and profitable helps, but havinga broad geographical appeal is important, as is franchising a business that is relatively easy and inexpensive to run. And, of course, the business needs to be easily duplicated. But even if you can tick a box for all these points, that's when the hard work starts. You need to do your research, prepare a business plan, protect the intellectual property aspects of the business and setup a structure to handle the franchised operation.

Read our guide to setting up a franchise operation for further information, or, take a read over some of our funded companies success stories for further inspiration.

Research and planning

If you think your business can be franchised, you will need to come up with a business plan and make sure you've done your research. While McDonald's burgers and Domino's pizzas are popular all over the world, that doesn't mean your niche tractor engine repair business will be. Ask yourself if your products and services are competitive and distinctive enough to be franchised. Is there a wider demand? But don't just ask your mates, do the research. Its probably wise to test the franchise potential with a pilot scheme at more than one location.

The legals

When operating a franchise - or any business with intellectual property or distinctive designs and logos - it's sensible to get registered with the right authorities, usually the trademark and patent offices. Then it's time to contact a solicitor who can help you draw up a comprehensive franchise contract setting out the obligations of each party, including how the fees, mark-ups on supplies and any other payments from the franchisee are to be calculated. These obligations should be made clear at the outset of any agreement with a franchisee.

Structure

When it comes to taking on franchisors, you will need to handover a certain amount of information, rather than simply patting them on the back and saying good luck.

Generally, this will consist of a comprehensive operations manual and training programme for franchisees, along with information about the expected standards of customer behaviour, for example. In some instances, such as McDonald's, it will be much more (it operates a nine-month trainingprogramme and offers 20-year franchise contracts). For most, the information will also include marketing and sales literature. Plus as franchisor, you must be in a position to handle the franchisee, and deal with their questions, concerns and problems.