Franchise - the building block for expansion

AS DEMAND for the services of accountants continues to grow, a number of practices have been using franchising as a successful, faster and more cost effective method of expanding their business.

With ongoing government support and continued preferred lending from British banks, franchising is set to achieve 10% year on year growth in the number of new franchisors over the next five years. Only 10% of franchisors have reached saturation point, which means the majority of franchisors still have enormous growth potential.

Among those accountants that have adopted franchising to successfully grow their networks are TaxAssist, Certax, The Financial Management Centre and Accounts Assist.

Norwich based-franchise consultants, Franchise Development Services (FDS) has almost 2,000 people registered on its database expressing an interest in owning an accountants franchise.

Its experience has shown that a well thought through, systemised business model can be readily used by a franchise owner to generate business, and good revenues for the network that are not easily available to a practice that is growing slowly, generically and regionally.

Moreover, the franchisor is able to build a valuable asset in the franchised business that makes their practice overall far more attractive when exit beckons, with more options than would be the case in a conventional accountant partnership business.

Taking the plunge

Before becoming a franchisor, an accountancy practice needs to ensure that all its system and procedures are in place and it is performing to replicable growth standards with a professional national-standard brand identity and corporate image.

Provided a practice meets the above criteria, its business model should be easily replicable with the correct training programme and its services - such as bookkeeping and arranging finance - can be franchised.

An experienced franchise consultant will be able to verify that the practice does have a business model that be franchised, and then provide a very clear and specific initial assessment of the key aspects that should be in place, and/or considered.

Among those will be assessment of the value of the franchise package and the overall investment that the potential franchisee/franchise owner will be required to make. To give an idea, management franchises usually require an initial investment by the franchisee in the region of £30,000-£50,000 + VAT.

Franchising only works where a company enters with the right levels of funding, management infrastructure and motivation. Where that exists, good franchise practices result and I suspect that many of those well-intentioned franchisors who fail have taken short cuts to franchising - trying to save money on the kind of professional consultancy which could have steered them away from miscalculations and injudicious moves.

Building

It usually takes between four to six months to create the infrastructure and once established, a franchisor has the potential to grow a network quickly with the franchisees' capital funding the new outlets.

The overheads and expenses associated with opening company-owned outlets are replaced by the franchise recruitment, training and launch assistance at a lower cost.

There are many other advantages for an accountancy practice to become a franchisor rather than open branches with managers. These include its higher levels of ambition, energy and commitment to the business and its standards from the franchisees, who are more motivated and effective than a salaried manager because they have a vested interest within the business.

As franchising is all about following a proven business model, with all franchisees following the same system, customers throughout the network should receive the same high quality service, irrespective of location.

That way the customers will always know what to expect from a brand, which, in turn, encourages loyalty, and repeat business. 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.

This means the franchisor can get a better edge on competitors unable to operate with a compact management database because they need to spend more on this element. Banks are willing to provide funding for both the franchisor as well as franchisees, with HSBC, NatWest and Lloyds TSB among those with dedicated franchise departments. But even banks without dedicated franchise departments are keen to lend to support franchises.

A £100m fund set up by NatWest this year has already seen more than half of the funds allocated. And no wonder; there are 37,000 franchise locations across the UK turning over a total of £12.4bn. The failure rate in any one year is less than five per cent and nine out of 10 are profitable, according to NatWest/RBS figures. Isn’t it time for accountants to practice what they preach and grab the opportunities that franchising presents?

Professor Roy Seaman CFE is managing director of Franchise Development Services (FDS)