Franchising

[Fred_the_frog]

Sorry if this is in the wrong place, but if it is tell me and ill move it

I would like to find out about franchising a company.
Lets say i have a retail shop that is doing quite well, and i want to open another store. Would it be possible to franchise my store with only one store open? I know people might not buy the franchise, but this is just an example to help me understand.

From what i know at the moment, the person that buys the franchise has to supply all the money to start the business themselves (their own money or from a bank). My role would be to get the store ready for them to start in, and train them to run the business like the store i have. They buy the stocks from the same place i do, and then i take a percentage of the profits they make.

Is this correct?

 

[chrispearce20]

hi, you have the right idea i supose.

so to anser your points:

- yes you can sell a franchise even tho you only have one store (infact you dont even need one)

- Usually they buy/rent there own unit/shop. and will pay you for use of your name/brand to put on there shop usually the figure for a new franchise would be 8k-25k.
however out of that money it is your duty, to completely fit the shop for them layout, equiptment, desks the works. as close to your shop as you can because obviously it is working for you. you then train them usually experiance at your shop for about 1 week depending on there previous experiance, then work with them at there new shop for opening first week or two.

give them the names of all your suppliers and wholesalers, they might expect you to put small amounts of stock ready in the shop for them to sell for free.

then leave them to it.

it is now there job to imploy people, and order future stock form your suppliers.
you should pop in at least once a week to check there accounts and presentation of the shop.

at the end of the year when they file there accounts you take a cut of there GROSS profit no there net.

Usually 20% in franchises however you might need to sell your first franchise at a lower rate 12%-18%

make sure you get a prefesional contract drawn up before entering an agreement.

 

[Fred_the_frog]

Ok thanks.

So what if there shop goes the other way. Who gets landed with the debt?

 

[chrispearce20]

you are not responsable for any debt, after the shop is up and running they basically run it as there own, in there own name.

none of the paperwork or loans should be linked to you, or in your name.

 

[Fred_the_frog]

you are not responsable for any debt, after the shop is up and running they basically run it as there own, in there own name.

none of the paperwork or loans should be linked to you, or in your name.

Wow. Surely there must be some catch to it though?

 

[silvermusic]

Wow. Surely there must be some catch to it though?

Yes, you have to have something worth franchising, a proven business model and a well known name or product, think McDonalds, Subway, etc.

 

[Fred_the_frog]

Yes, you have to have something worth franchising, a proven business model and a well known name or product, think McDonalds, Subway, etc.

Ok, so the name/ product has to be well known before people will bother buying a franchise?

 

[bagelbox]

You need a really exciting business model that can't be easily replicated by joe bloggs off the street for people to bother investing in a franchise.

 

[Fred_the_frog]

You need a really exciting business model that can't be easily replicated by joe bloggs off the street for people to bother investing in a franchise.

What makes The Body Shop an exciting business model?

 

[bagelbox]

What makes The Body Shop an exciting business model?

They built brand value. No one will buy into an unknown franchise unless it's something particularly specialised.

I've been a part of a national maintenance franchise brand before - I've got a grasp of the industry!

 

[Psl]

Franchising, when done correctly, can be a great way to expand a business and enable other people to get into business fairly quickly.

The franchise does NOT need to be a brand or a well known name as long as the business is viable and profitable and the franchise is set up correctly.All businesses have to start somewhere.

It is all well and good selling the franchise but you must pay just as much attention to the prospective franchisees.There are a lot of people who buy a franchise, not work it correctly or are just bone idle and expect to see the money come rolling in and when it all goes wrong they blame the franchisor, never themselves. On the other hand you can get some really great franchisees.

If your current business is profitable then why not franchise it.

Make sure your contract is fair and unambiguous and royalties/commissions, set up cost's, stock purchasing etc are clearly stated in the contract.
Set out clearly each parties responsibilities and don't agree to them and then take up the slack when the franchisee shirks their responsibilities and don't be afraid to issue a default notice and then terminate the franchise at any stage if you feel the franchisee is not up to scratch.

Remember it is your business and your brand that is being built and franchisees are there to help the business and the brand grow,as well as making money.

There is a lot to do to set up a franchise and a number of cost's but it sounds like you have the basis, a profitable business, so why not go for it.

good luck.

 

[Mitch3473]

I've been involved with 3 franchises,purchased,built up from scratch and sold on.
In an ideal world the original business / model should be up and running and profitable,easily franchisable and fairly simple to run.......
The firm who is franchising ,again,in an ideal world should have had a pilot scheme running for a year or more to prove that the franchise,(not the original business) can work and is equally profitable.Actual figures should be available to you not proposed or assumed figures.
The contract will be wieghted in the franchisors favour but that is not a bad thing,it is fairly standard.It is your business and you must run it along the guidelines of the contract and any debts or liabilities will be yours.
One thing to remember......you have to work at it.I have seen quite a few people buy into franchises and think Ok,now I'll put my feet up and wait for the phone to ring.Wrong.All a franchise is is a proven track record that the business CAN work not that it WILL work for you.Everybody is different and have different ways of approaching business. Generally speaking a franchise is more likely to succeed than a fresh start up business as long as you have done your homework.

 

[fwd333]

make sure you read the terms in detail alot now want % commision on sales which is a bit of a joke for the comiison they ask for!

 

[LimeLicensingGroup]

I'm enjoying reading this type of post! As a franchise specialist myself there are a few inaccuracies in previous posts. e.g. "then leave them to it." good franchisors dont ever leave their franchisees to it, they regularly keep in touch and coach them on best practice. Also royalties are not generated from gross or net profit at the end of 12 months, they are based on monthly "gross receivables" i.e. turnover. Royalties are usually paid at the end of every month in arrears and not at the end of 12 months. Of course this assumes that the royalty is gained via a percentage of sales in the first place and not a margin on goods supplied or a fixed fee. Franchisors have numerous other income streams from their networks.
You dont need a national brand name nor do you need to open the first outlet close to you for demographic reasons and if you already have one successful outlet then you are absolutely in a position to franchise your business.

 

[Fred_the_frog]

So would you say that franchising is more profitable, or would you say if I owned the other stores it would be more profitable?

 

[LimeLicensingGroup]

That question is a job best answered in a financial model.

You'll know what your average outlet could produce in terms of profit and what human and financial resource is required from you to achieve it. In franchising the financial and human resource is provided by the franchisee to get the outlet up and running. Your profit comes from a margin on the initial franchise fee which is a fixed one off amount and then a royalty (or management services fee as it is more commonly referred to these days) which is a percentage of turnover. So your answer lies somewhere between your view of spending your own capital and human resource to set up more sites versus the royalty profit per site if new outlets are owned by franchisees, but of course franchisees spend their own capital and provide the human resource to launch the new sites. Most franchisors think they will grow far quicker by franchising because the network is built on the investment from franchise owners not the core company. Of course you could have a part managed network, and a part franchised network?
You may need to consult a franchising professional to "model" this for you?
My details are below

 

To be blunt, the answer mostly lies in availability of capital before even considering ROI.