Should we franchise?

Franchising is a collaboration between two independent traders. It seeks to replicate a proven business model or concept through an increasing number of franchisees operating in a chain, and thereby achieve commercial success for both the chain and the associated traders.

The franchisor generally launches the business at one or more of its own locations, and after the operations are up and running successfully with a documented concept and protected exclusive rights, the time may be right to expand them to locations run by franchisees, either alongside or in place of those run by the chain.

Franchise chain trademark and domain names

A trademark or brand is a common symbol of a franchise chain that anchors the values of the chain, and that distinguishes the identity of the chain and its goods or services from those of other businesses. Besides the prescribed business concept, franchisees acquire a licence to use the well-known trademarks and symbols of the chain, thereby adding value to their operations.

Registering those trademarks is the right and duty of the franchisor. Before launching the chain, the franchisor must ensure that the principal emblem of the chain and any other identifying symbols that it will use are adequately registered. Besides trademarks, registration of serviceable domain names should also be ensured.

Franchise analysis and the business plan

It is a good idea to begin developing franchising operations by analysing the suitability of the franchising model for the company’s own commercial objectives and circumstances. While franchising is no business panacea, it is usually a highly competitive operating model where applicable. The suitability and optimality of franchising as a corporate growth model should always be studied before embarking on concrete development measures. This investigation is known as franchise analysis.

If the analysis finds that franchising is the best growth model, then it is important to develop a franchise business plan. This business plan will systematically consider and model all of the key aspects of franchising: setting business goals, defining the franchising business idea, formulating a chain strategy, reviewing resource requirements, making action plans (including recruitment, monitoring and guidance of franchisees), launching and managing chain operations, and preparing financial calculations.

The franchise agreement and ancillary agreements

Besides the business plan, it is necessary to prepare any non-disclosure agreements or pre-contracts for franchisee negotiations, a franchise prospectus (i.e. material setting out the format of chain co-operation), and naturally the franchise agreement proper. The franchise agreement must set out the ground rules of co-operation as comprehensively as possible. The Code of Ethics of the Finnish Franchising Association is a valuable resource for drafting agreements. Practical guidance for operating a business in accordance with the concept must be documented in a chain manual, which is a part of the franchise agreement that may be updated by the franchisor.

Securing the assistance of experienced specialists is absolutely worthwhile when setting up a franchise chain in this way. FranCon Franchise Consulting and its CEO Henri Laakso are specialists in franchise analysis, franchise business planning and preparing a franchise prospectus and manuals. They are worth consulting at an early stage. Hanna-Maija Elo, a partner at Properta Attorneys Ltd, provides decades of experience in questions of trademark protection and franchise chain contracts.

In collaboration with Franchising Specialist, CEO Henri Laakso. FranCon Franchise Consulting (www.francon.fi) henri.laakso@francon.fi tel. +358 50 553 5799.