Creating a Franchise Model

Once you have undertaken your SWOT analysis and decided that franchising is for you, you then need to take the folowing steps:-

1. Define the franchise proposition of your brand
2. Design a suitable franchise package
3. Drawing up franchising sales and marketing package
4. Writing your Operating manual
5. Creating a Franchise agreement (contract)
6. Creating a Franchise prospectus
7. Reviewing the costs and identifying financial support if required
8. Establishing and managing control and support systems
9. Creating a timescale for piloting the first franchisee
10. Creating a job specification of a suitable franchisees
11. Undertaking Franchisee recruitment
12. Achieving breakeven point
13. Maintaining continual communication

Below we have detailed further information in regards to creating a franchise agreement, recruiting franchisees and assessing the financial costs involved.

A Franchise Agreement needs to include:-

• Franchisor's proprietary interests
• Parties & Rights Granted
• Franchise Fee and Term
• Rights of Renewal
• Franchisor's Obligations - Initial & Ongoing
• Franchisee's Obligations
• Training
• Management Charge
• Accounting Records
• Advertising
• Insurance
• Sale of Business
• Non-Competition
• Death of individual
• Termination & Consequences

Other Agreements

• Confidentiality
• Lease
• Registered Licence
• Operations Manual

Process for Recruiting Franchisees

Interesting facts about existing franchisees

• 80% of franchisees are married
• 79% of franchisees are male
• Average age is 45
• 65% were in salaried employment immediately prior to buying a franchise
• Self motivation is most important attribute sought be franchisors (59%) followed by sales and marketing experience (45%)

Creating a Franchisee profile

You will need to write a job specification for a franchisee

• What Salary/earnings would they expect
• What liquid assets would they have available to invest
• What is their likely time commitment
• What core skills will they need
• Specification of essential v desirable attributes
• Qualifications; financial, ability, energy and enthusiasm
• You will need to detail the selection process

It's important to remember the following franchisee recruitment metrics, bear the costs of growing your business by franchising.

• Conversion of no more than 4% of initial enquiries for prospectuses into sales
• 60% of mature franchisors report average recruitment cost of £5000 per franchisee.

You will spend a lot of time talking to and meeting potential franchisees who aren't a right match resulting in lost time with no income attached.  

You may need to secure finance to franchise your business as it still requires significant time and investment to succeed. Franchising shouldn't be seen as a cheaper alternative to organic growth.

Franchisor Investment Costs

1. External Set-up Costs

2. Internal working capital requirements

3. Franchisee Set-up costs

4. Training

Franchisor External Set-up Costs

• Manual
• Company formulation
• Franchise Agreement
• IP Protection
• Brand renewal
• System improvement

Franchisor Internal Working Capital Requirements

• Working capital months
• Salaries, new and/or replacement
• Sales
• Management
• Marketing (franchisee recruitment)
• Management (cross) charge
• Pilots funded by franchisor

Franchisee Set-up cost

• Equipment
• Vehicles
• Legal
• Launch marketing
• Marketing collaterals

Training

• Marketing & sales support
• Technical training
• Other

Is your Franchised Business Financially Viable?

To cover the start-up and ongoing franchise costs detailed above...

• How many franchisees would you need to recruit?
• How much sales income would each franchisee need to generate?

....to enable you to reach break even point and eventually make a profit.

Information supplied by the Create Project

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