Franchise clinic Autumn 08

Cathryn Hayes is the Head of Franchising for HSBC Bank plc. Previously, Cathryn held a number of managerial appointments within the bank and spent several years as a branch manager where she gained a depth of experience in lending to businesses.  She is an Associate of the Chartered Institute of Bankers.

How can I assist my franchisees in a period of economic downturn?

The possibility of a UK recession now appears more likely with the British Chambers of Commerce warning that firms are going to face a difficult and risky climate over the next six to nine months. House prices continue to fall, interest rates have not fallen and levels of consumer debt remain high – factors adding to economic uncertainty.

As franchisors, you can help your franchisees:
•    Review overheads. Benchmark your franchisees and help them consider how they compare against their peer group
•    Build value by ensuring the product or service offered is different from competitors
•    Achieve greater stock efficiency. As a franchisor, are your own systems robust and effective? Are you able to obtain better credit terms from suppliers or ask for better discounts in return for prompt payment.  
•    Consider leasing instead of outright asset purchase, enabling you to spread repayments over a period of time instead of making a one off investment.
•    Consider how IT is used in the business – can it be used to further cut costs and improve efficiency – what are your best franchisees doing that the others can learn from?

It is vital to keep a close check on how much money the business is owed and whether franchisees are keeping on top of invoicing, chasing, credit checks, etc. Is the franchisee very dependent on a small number of large customers – this could lead to major problems if one of these fails?

Are your franchisees working well with their banks? The problem areas that can lead to a breakdown in the relationship include not supplying agreed information on time, failing to make loan repayments, repeatedly exceeding overdraft limit, unexpected or persistent trading at a loss, and not using facilities for purpose agreed (new boat, cars, holidays!).

Ensure your franchisees keep good financial records and forecasts. Banks will look more favourably on finance requests if you show you’re in control and can plan. Review your marketing strategy and sales performance regularly. Keep an eye on the competition.

Have you got the right management and support team in place?

The overall message is, whatever the state of the economy, get the basics right to encourage and foster success.

Dominic Tonner is the Editor of Business Franchise magazine. Previously editor of a weekly newspaper and three magazines, he has worked professionally as a journalist since 1995. His writing credits include The Sunday Times and the Financial Times and he is the author of two non-fiction books.

I have secured some space in a magazine to promote my business. What are the most important things that a prospective franchisee needs to find out about me?

We all know that franchisee recruitment can be one of the biggest obstacles to franchisor growth. That’s why marketing the business in places like exhibitions and in franchise magazines is so important. The internet and word-of-mouth can only take you so far!

Few things beat standing in front of a prospect at an exhibition and conversing with them. This fact is actually worth bearing in mind when it comes to marketing the business through a magazine. Remember that editorial in a magazine is a one-off and one-way communication. So you need to anticipate the prospect’s questions and basically answer them for him or her through the editorial you (or your PR people) are writing.

Only you will know those particular ‘FAQs’ (frequently-asked questions) that crop up at your exhibitions and open days. There will always be some sector or company-specific questions. But some general things that all franchisors must try to incorporate into an article include: Some background on your business, including information about its origins; the cost in total to a franchisee of setting up the business, profit and revenue estimates; details on training and ongoing support; contact details; anecdotes from existing franchisees (case studies are very handy); attractive and professionally-produced photography, preferably with corporate logos and branding clearly visible.

And a few things to try to exclude (!): Exaggeration (stick to the facts, especially regarding profit and revenue projections); marketing and business clichés; and unappealing photography.

Get this right, and you should see a bigger return on that marketing investment.

 

Elise Billy is founder of Franchise Generator and EXB Legal, a specialist franchise consultancy and law firm respectively. Prior to founding her specialist firms, Elise worked at major city law firms and international businesses and has direct commercial experience from running internet and consultancy businesses

We need regional representatives to help with our UK franchising.  What structure and documents do you suggest?

Franchisors approach this in different ways so please take legal and tax advice.  Three of the most common options are:

1. Using your own personnel
   
2. Using a master franchisee structure and
   
3. Using external service providers. 

The first option means that you recruit managers (who could be based regionally). This usually involves no more than employment agreements. Advantages include direct control, profits and revenue coming to you, and franchise agreements being directly with you. Disadvantages include higher overheads for you, potentially a less incentivised representative (although you could offer bonus payments) and the risk of resignations.

The second option involves a master franchise agreement with the representative, who then grants franchise agreements to franchisees in their territory. Usually you take an upfront payment from the master franchisee and then ongoing payments based on their revenue from franchisees. Advantages include an incentivised local representative, lower overheads for you, and the benefit of ongoing fees. However, disadvantages include loss of control (in particular because the franchise agreement is not with you, which can be a concern on termination of the master franchise), risks from what is effectively a ‘multi-tier’ arrangement and lower profits than the first option.

The third option is similar to the second but you enter a services agreement with the representative who refers the franchisees to enter the franchise agreement directly with you. The financial structure can be identical in result to a master franchise agreement, so that the ‘regional principal’ (the name is not important) pays you an upfront fee and you end up with an equivalent percentage of the ongoing fees to the master franchisee structure.  The difference is that you receive the franchisee fees and pay the regional principal rather than the other way round.  The advantages are similar to the second option but with fewer disadvantages because the franchise agreements are under your direct control and there is no multi-tier arrangement.

Maurice Logie is a director for bfa affiliate member, Moreland Insurance. He is responsible for business development and specifically the francover.com brand.

Does the fact that my business is a franchise help me in terms of my insurance costs?

The good news is that the answer is yes! The principle of setting standards in business that is behind franchising is one that encourages insurers when it comes to managing risks. We find that insurance companies do recognise that the systems put in place for health and safety as well as training and the general ‘ironing out of risks’ goes down well. Franchisors should take advantage of this and in turn keep their franchisees happy by using their buying power in the insurance market.

There is always the balance between using the group-buying opportunity and perhaps needing the flexibility for individual franchisees that require a slightly different type of policy. That is when we, as insurance brokers, endeavour to get the best of both worlds for our franchise sector clients.

In particular, we can remove all the hassle when it comes to making sure the right cover is at a competitive price. So if you have not already done so why not consider a feasibility study across the range of risks within your particular franchise.