Love At First Sight, The Franchisee Recruitment Process

As a franchisor or franchisee - introduced to one another through a magazine advertisement, website, exhibition etc - you are about to enter into a courtship aimed at developing a long term, mutually satisfying partnership - just as we do with our partners in life. Nick Williams explores the Franchisee recruitment process.

From the outset, both parties must be clear what it is they are looking for in a partner in order to make best use of the time available and to help avoid disappointment. For some, the courtship may be short and exciting ending in a consummated relationship. For others, agreement and parted with your cash, backing out if you're unhappy won't be so easy.

Have a predetermined procedure to follow in considering your potential partner.

For potential Franchisees this means following our Franchise Buyer's Checklist, which can be found overleaf.

A Franchisor should have a clear picture of the skills and attributes he wishes candidates to possess.

Why become a Franchisee?

It isn't just profit that drives people to invest in a franchise, but a combination of factors such as: ambition; control of future/time; a desire to build something independently rather than act as a cog in someone else's business wheel; job dissatisfaction or redundancy; or a change in financial/domestic circumstances.

Unlike setting up in business independently, the Franchisor has a proven model for doing business and has already made the initial mistakes inherent in most new business start-ups. The attractions of franchising prompted investors and entrepreneurs to open some 500 new units in 2004 (according to the 2005 British Franchise Association/NatWest UK Franchise Survey) - that's almost 10 a week. The survey suggests that 96 per cent of these units will still be operating after five years.

Ongoing training and support, combined with being part of a larger network is also a very attractive factor, but make sure that this is being offered as part of the initial package and won't cost you extra. New strategies introduced as part of the Franchisor's ongoing research and development programme keeps the business fresh and ahead of the competition, while the Franchisee concentrates on building his or her business.

Why expand through franchising?

There are 10 main reasons why established businesses can enjoy even greater success nationally via franchising.

1. Faster National Expansion Having formulated the business systems ready for franchising, a network can grow quite quickly with the overheads associated with opening company-owned outlets replaced with the lower costs of franchisee recruitment, training and launch support.

2. Better Motivated Operators By choosing franchising as a means of business expansion, Franchisors can benefit from owner operators' ambition, energy and commitment to the business. Franchisees make a financial and emotional investment in the franchise and therefore tend to be more motivated than salaried managers.

3. Edge Over The Competition Customers are often attracted to a new idea and will stay with a brand if the product or service is as good as, or better, than that supplied by their previous provider. By quickly expanding into new geographical areas, Franchisors are well placed - as long as the product or service is good enough - to attract competitors' customers, and retain them.

4. Effective Quality Controls Franchising is all about following a system. As all franchisees are following the same system, customers throughout the network should receive the same high quality service, irrespective of location. They will always know what to expect from a brand, and that encourages loyalty.

5. Rationalised Management Running a franchise system requires less management than a company owned chain of outlets, since hiring, training, motivating and retaining competent staff are all functions handled by the Franchisee, not the Franchisor. It means franchises can get a better edge over competitors unable to operate with a compact management base and who therefore need to spend more on this element.

6. Local Knowledge Expanding a business into new areas requires thorough research. Expansion through franchising passes the main responsibility for evaluating a new territory onto the franchisee, who already possesses valuable local knowledge. This is especially attractive when expanding a business into foreign markets. By using indigenous Franchisees, Franchisors can tap into local business knowledge, which they may otherwise have been unable to obtain.

7. Group Purchasing Strength Centralised buying allows an entire network to benefit from volume discounts that an independent trader would be unable to obtain. As a result, franchised territories will be in a better position to offer much more competitive prices, which will help to increase market share.

8. Dedicated Distribution Network As a manufacturer or service provider, establishing the sales function of a business as a franchise operation provides the Franchisor with a distribution network entirely focused on the supply of a product or service to customers.

9. Marketing Power As the network develops, all outlets can benefit from the group's marketing initiatives, both at a national and regional level. A positive network spirit will encourage Franchisees to help one another through referrals as customers become increasingly familiar with the brand, expanding on a national level.

10. Improved Profitability The return on investment can be higher for a business that expands through franchising. Because there is less capital employed, the franchisor's profits are generated on a much lower capital investment. Although the revenue received from franchised units is logically less than that from 100 per cent company-owned outlets, a higher percentage of the revenue is actual profit.

Making Progress

As a prospective Franchisee you may approach a specific brand directly, through a magazine response service or through a broker/recruiter. Your first contact with the Franchisor may by through a letter, a franchise brochure or a phone call. There may be a simple preliminary application form to complete at the first stage designed to establish your level of interest in the brand and to match key details about you to the Franchisor's target profile. The Franchisor may call you and ask for the form to be completed or call you after it has been submitted.

The Franchisor will then usually invite you to a meeting or request that you meet within your area or even at a halfway meeting place. At this 'getting to know you' meeting you should expect to have to sign a confidentiality agreement in order to gain much more detail about the business to aid your due diligence. This 'non-disclosure' document gives the Franchisor the confidence to answer some of your more probing questions, which you will be taking from the Checklist opposite.

Throughout the due diligence process it is important that you bear in mind that there may be others interested in your territory and that the Franchisor only has a limited amount of time. It is not unusual for a lower investment franchise to be arranged from start to finish within two or three months. Although, according to the UK Survey, the average length of time it takes for a Franchisee to become fully operational is seven months, as premises based franchises usually take longer.

Check Before Cheque

Remember that mother's good advice was always well intended and ignored at your peril - take your time and be sure you are meant for each other. This means doing your research and seeking the advice of professional advisers.