TAKING YOUR FRANCHISE TO THE UK & EURIOPE

The United Kingdom often seems the logical place for overseas franchisors from English-speaking countries to begin their European expansion. The language is similar. There is a well-developed franchising community that is supported by the lending banks. There are an array of experienced legal and practical advisors, and a wide choice of franchise and small business magazines and exhibitions in which to promote the opportunity. Once established in the UK, the business then has a natural springboard into mainland Europe.

One of the first questions to be answered is what should be the entry strategy? Naturally most franchisors will eventually be looking to duplicate what they do in their home market - that is, set up a network of sub-franchisees, which will often be recruited and managed by a master franchisee. Of course, there are other structures available. For example, the franchisor can set up an owned subsidiary to also become the franchisor within the new country/market. Alternatively, the franchisor can appoint an area developer who only opens and operates owned units. But master franchising with sub-franchisees is often the preferred option for most businesses who franchise in their home country.

An increasing trend involving international franchisors, from countries that are much larger geographically than the UK, is to appoint regional master franchisees, who in turn subfranchise or appoint actual operating franchisees. Whilst there is no reason why this strategy shouldn't work in practice in the UK [if it works in the home country], there are problems - not least with the approach taken by The British Franchise Association (BFA). Unlike many national franchise associations, the BFA have strict membership criteria for applicant franchisors. In instances where a number of different entities are going to recruit franchisees into a system the BFA requires them all to individually meet those criteria. Furthermore, if one does not qualify, or chooses not to apply, then none can be BFA members. This will cause problems as nearly all the lenders and franchising media recommend that potential franchisees only consider those businesses that are members of the BFA. Local advice on how best to structure your entry to the UK is therefore important.

Whatever the chosen structure, the proposed network will be much better received by the UK franchising community if it is properly pilot-tested and proven before sub-franchisees are appointed. Overseas franchisors are often surprised by the conservative and cautious attitude displayed by potential UK franchisees. They will look for a proven business format, for which some credible market research has been undertaken, and which is professionally presented. English people are not generally as entrepreneurial and willing to take a gamble as is often imagined and will take a long time to examine an opportunity before deciding to go ahead. However, once committed they will give it all they've got to make it succeed.

The good news is that the UK has no pre-contract disclosure laws. Indeed there is no specific franchise legislation whatsoever. Joining the British Franchise Association requires submitting to a detailed accreditation process as does exhibiting at any of the British franchise exhibitions. Both organisations are keen to raise the standard and quality of franchisors rather then simply go for large numbers.

One of the most surprising things for businesses with premises-based franchises when they first come to the UK is the cost of real estate and the difficulty and time involved in actually securing the lease to premises. As a general rule expect sites to be a lot smaller, rents to be considerably higher and for it to take a lot longer to secure occupation rights. Taxation and labour laws will also be different and all these things have a bearing on how successful the transfer of the business format is likely to be. When the move is made into mainland Europe everything will change again - often in each country!

The most frequently asked question is "how much can we charge for upfront and ongoing fees? As usual, there is no "right" answer and it depends how badly you want to be here, how much you want that franchisee, or how much that franchisee wants your brand and system. Establishing the fee structure which is right for a particular business in a particular market is one area where local professional guidance is invaluable.

One area of franchise development where the UK led (and probably still leads) the world is the presence in nearly all the major banks of dedicated franchising sections which keep tabs on all the operating franchisors. Banks here love lending to franchisees because it is proven to be a much safer form of small business lending for them - providing of course the franchise has been properly set-up and structured in the first place or, if it is an incoming system, that the appropriate research has been done. There's that good old UK conservatism again.