Brian Scott, partner at chartered accountants, Graham Paul, has helped businesses to leverage their sales opportunities through franchising and in turn has helped many franchisees to raise the finance to get their businesses up and running. In this article he looks at the opportunities franchising offers to companies and explores how you can identify if franchising will work for you.

The term 'franchising' has been used to describe many different forms of business relationships, including licensing, distributor and agency arrangements. The more popular use of the term has arisen from the development of what is called 'business format franchising.'

Business format franchising is the granting of a license by one person (the franchisor) to another (the franchisee). This entitles the franchisee to trade under the trade mark/trade name of the franchisor and to make use of an entire package, comprising all the elements necessary to establish a previously untrained person in the business and to run it with continual assistance on a predetermined basis.

Who is in Control?
Each franchise operation is owned and operated by the franchisee. However, the franchisor usually retains control over the way in which products and services are marketed and sold, and controls the quality and standards of the business.

What are the Cost Implications?
The franchisor again usually receives an initial fee from the franchisee, payable at the outset, together with on-going management service fees - usually based on a percentage of annual turnover or mark-ups on products or services sold. In return, the franchisor has an obligation to support the franchise network, notably with training, product development, advertising, and promotional activities that help to raise brand awareness on behalf of their franchise network.

Is your business Franchiseable?
The franchise method is now used successfully by all sorts of businesses in all sorts of markets; but not all businesses are franchisable. If your company has one or more of the following characteristics, franchising may not be suitable:

	A product or service which is only likely to have a market for a short time.
	Gross margins which are too low to offer a return on investment to both you as the franchisor, and your franchisees.
	Skill levels for each operating unit that require very long training periods.
	Predominantly repeat business customers whose loyalty relates to the individual providing the service and which would be difficult to transfer to a brand.
	A geographically defined market that doesn't have the potential to be repeated in many places.
	A business with audit and control requirements which are too critical to involve franchisees operating as separate legal entities.
	A business which is failing.

The principal benefit which Franchisors hold out to prospective franchisees is the opportunity to run a business which has already proved its capacity to deliver products or services profitably to an identified market.

Graham Paul has assisted many franchisors and franchisees to realise their business potential through flexible funding arrangements for both business growth and business start-ups. With easy access to websites for most people it is not only easy to find Graham Paul (www.grahampaul.com) but to see the attractions of having a business relationship with the company.

You will need to draw up and prove a comprehensive operations manual that details what a franchisee does, how they are to do it, and to what performance and quality standards. The manual(s) will need to cover the setting up phase as well as continuing operation.

You will also need to develop and prove an initial and continuing training programme that ensures that the "know how" contained in the operations manual(s) can be transferred successfully to a third party.

Recruiting Franchisees
Recruiting franchisees is probably the hardest and most expensive job for any business considering this development option. New franchisors have conversion ratios of serious enquiries to appointment of around 10:1 Established franchisors have a conversion ration which is often higher than 50:1 sometimes higher than 100:1.

The recruitment mechanisms you may wish to consider are:
Franchise exhibitions
Newspaper Advertising
Trade Magazines
Referrals
British Franchise Association
Franchise Centres and Brokers

Graham Paul has a good track record and history in assisting franchise operations and we take into account that in these situations there are frequently very little business records available from the prospective franchisee for us to make a decision on. In addition, we realise that funding is not just about premises and equipment, it’s also about fixtures and fittings, which many of the large financial institutions won’t take into, account.

Graham Paul is looking for people with roots, energy, ideas and determination and we make decisions at a very early stage based on people knowing what they are talking about and based on our judgement of how they will perform in adverse conditions which sooner or later affects most businesses.

For more information contact:

Brian Scott
Graham Paul Chartered Accountants
01656 679800
b.scott@grahampaul.com