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Franchise Advice


Richard Holden, head of franchising at Lloyds TSB Commercial, The franchisor’s point of view


“Franchisees will inevitably take time to build their business and therefore income, so initially the fees payable to the franchisor are likely to be at their lowest”


From the outset, a business owner who chooses to embark upon franchising as an expansion model is taking a calculated risk. A signifi cant upfront capital investment is needed to get the business ready to recruit potential franchisees, and this initial capital outlay is not usually recovered for at least a year or two, if not longer.


In addition to the franchisor’s capital investment, it is equally important to understand the signifi cant time and human resource commitment that is required to franchise a business. It is a steep learning curve for the new franchisor and it is essential that they receive the support of experienced and knowledgeable franchise professionals to steer them along the right path.


For the would-be franchisor, they must


be prepared to relinquish control over every aspect of their business at some point in time, which can be a daunting prospect. There must be a true commitment to franchising as the business format for the company.


When selecting new franchisees, the franchisor needs a good marketing plan, to be clear on who they are looking for and a robust selection process. Franchisors must be ready to support their franchisee


20 | Businessfranchise.com | February 2012


network from day one and the early months of trading is where they are most likely to need support.


Franchisees will inevitably take time to build their business and therefore income, so initially the fees payable to the franchisor are likely to be at their lowest. This income will build over time as the franchisee’s business matures and more investors are recruited into the network. Once the initial growing pains have been overcome, there can be considerable rewards for the business owner that chooses expansion through franchising. It is a development option which requires less capital because the franchisees use their own fi nance to set up additional outlets.


A successful franchisor can run their network with fewer employees than would be necessary in a corporate-owned chain. This provides a better return on capital despite the fact that in most cases individual corporate owned stores are more profi table for the franchisor than a franchised store.


Franchising can also allow a more rapid expansion through the combined effect of motivated owner managers, the use of the franchisee’s capital and using standardised business systems.


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