Franchising describes an arrangement where a third party, the "Franchisee", is granted a licence by the "Franchisor" to use the Franchisor's brand and business model. It is a system that has brought huge success to businesses in all sectors, in Scotland, the UK and beyond.
The Franchisor will permit the Franchisee to use the Franchisor's name, trade-marks and other intellectual property, in addition to providing advice and assistance to the Franchisee. The Franchisee will get the benefit of a proven business model, as well as receiving support in getting up and running. In return, the Franchisor will generally receive a fee and an ongoing share of the revenue of the Franchisee.
The Franchisor will also want to monitor the Franchisee's actions to ensure compliance with the operating standards set out by the Franchisor. This preserves the integrity of the brand being franchised and ensures revenue is maximised.
Benefits of becoming a Franchisor
There are many benefits to establishing a franchise, including:
- It is an efficient growth model, allowing a business to expand with minimal capital investment as the Franchisee will generally fund their own start-up costs;
- Likewise, it is lower risk for the business as the Franchisee typically takes on any required debt and liability for any new premises;
- Facilitates expansion without taking up (too much) management time, as any new Franchisee will manage the administration of a new business set up and should be highly motivated to make a success of it. That time saving becomes particularly powerful the more franchisees are added to the network as processes become streamlined;
- Minimal employee supervision once the Franchisee is established, as the Franchisor should only need to provide training and support initially, and then on a limited ongoing basis. The Franchisee is then responsible for running their business autonomously, employing and managing their own staff;
- Predictable and steady income stream received from Franchisee's in the form of management/supervision fees and revenue share; and
- The presence of a Franchisor's brand in more locations across the country (or countries), this should mean greater brand awareness, translating into increased profit and success for both parties.
How to do it?
Get your business franchise ready
Your business branding will be a key element in the success of a franchise so ensure that any trade marks and company names are registered. Think about what makes your business distinctive. What is the system you want to be replicated? Start to create an operations manual setting out any procedures, management, marketing and advertising techniques.
Set up a pilot operation
A useful interim step can be to set up a pilot operation. This provides a test phase to assess whether your proposed franchise model is viable. Typically, a pilot franchisee will already be familiar with the business (sometimes a current employee or regular customer) and will be offered the opportunity to own and operate their franchise at a reduced or nil upfront cost. You can then trial if the model is sustainable and iron out any teething issues before expanding.
Franchise agreement
Once you are happy that your franchise model is scalable you need to think about your franchise agreement and what you want this to cover. The next blog in this series will cover some points to consider when preparing this agreement.
Brodies are well versed in supporting businesses through this journey so if you are considering setting your business up as franchise, please do not hesitate to get in contact with your usual Brodies contact or one of the contacts listed below who will be happy to assist.
Contributors
Senior Associate
Trainee Solictor
