How can a business be franchised?

Franchising is not the panacea for all business difficulties and is not a guarantee of success for franchisors who have adopted it to market their package. It is a concept which is vulnerable to abuse and demands a high degree of co-operation from both the franchisor and the franchisees.

The subtleties of franchising take time to understand and not all businesses can be successfully franchised. Any entrepreneur must take a good, long, hard look at his business concept before jumping head first into franchising. The failure of a franchise can be disastrous not only for the franchisor but also for the franchisees who have invested in it.

In order for a franchise to stand a chance of succeeding, the basic concept must be a sound one, the franchisor must have sufficient resources to support the chain, and the franchisees must be properly managed.

An idea cannot be franchised. In order to franchise a concept it must first be proved to work as a business. The franchisee is paying for the right to use a system that has proved to be successful, not to put someone's bright idea into practice.

Business format franchising can be considered a system leasing arrangement. The franchisee acquires from the franchisor the licence to duplicate the franchisor's existing and successful system of providing a product/service to the end user.

The potential franchisor must therefore ask itself whether or not it has anything worth franchising. The right to sell a particular product by itself is not a business format franchise. It is an agency or distributorship which may well prove to be a profitable business in its own right, but it is not a business format franchise.

For a business to be franchiseable there must be definable know-how, a distinct way of doing things that distinguishes the business from others. Each element of the know-how taken by itself may well not be unique; there are for example, only a limited number of ways to grill a hamburger, fry chips and make a milk shake. The combination of them, however, may be unique. When coupled with the franchisor's name and trade marks the system should be identifiable and distinctive. It is this that will create the value of the franchise.

This means that the know-how must be carefully identified and easily communicable. Intensive training courses and an operations manual will therefore be necessary. The potential franchisor must ask itself whether or not the concept lends itself to this. A franchise consultant may be useful in this regard.

Once the potential franchisor is satisfied that there is definable, communicable know-how in the business, it must then carry out a "legal audit" of its intellectual property rights and make certain that the corner stone of the franchise - the name, trade marks and other intellectual property rights - do in fact belong to it. A franchisor cannot grant its franchisees the right to use a name and trade marks over which it does not have any proprietary rights.

Once a concept has been developed and its name and marks protected, it follows that it must be tried and tested in the market through a pilot operation. This will further test its profitability as a business for franchisees and allow the potential franchisor to further refine the system on the back of further practical experience.

Once the concept has been piloted, or indeed before, the potential franchisor must decide upon how it will make money for itself from the franchise business. The banks should be keen to fund respectable franchisors with sound concepts.

In addition to arranging the funding and determining the financial structure of the franchise, before actively recruiting franchisees it is essential that good quality legal documentation, is prepared by a solicitor knowledgeable of both the legal and commercial subtleties of franchising.

Once the franchise has been set up, the finances arranged and the appropriate documentation prepared, it is of course important to arrange the effective marketing of the franchise to franchisees. The best franchises require the least marketing effort. Once potential franchisees have seen outlets running and have had the opportunity to speak to happy and successful existing franchisees there will be little need to actively sell the franchises.

Most franchises however, particularly to begin with, do have to market themselves carefully.

Once franchise applications are received, they must be carefully considered and full financial forecasts presented to short-listed potential franchisees. This will allow them to judge properly the value of the franchise.

Finally, when considering franchising its business, the potential franchisor must be aware that it is contemplating radically changing its own role within it. It is no longer on the "sharp end" of the business, working with customers on a day to day basis. It should instead be continually developing and improving the system, planning its strategic growth and monitoring the franchisees to ensure that the high standards of the system are being maintained. Failure to understand this change of role will result in both franchisor and franchisees experiencing unnecessary difficulties.