Interview: Franchisor Shares Critical Insights for Prospective Franchisors
At the New York Franchise Law blog we have been fortunate to receive insightful and instructive comments from our readers. Many of our readers are franchisors, franchisees and some extremely experienced franchise consultants and professionals. Basically, our readers have a lot of good information to share. So, recently my staff had the opportunity to interview and speak with Bob Harper, an existing franchisor. Mr. Harper, has posted some informative comments on our site and has shared his experiences as a "start-up" franchisor. Mr. Harper's franchise provides bookkeeping services in the United Kingdom under the "Crunchers" trade name. In his interview Mr. Harper shares some insights and experiences that prospective franchisors should consider before making the leap from "business owner" to "franchisor". A portion of Mr. Harper's interview and some of my comments follows:
Q: What is the Crunchers business all about?
A: Crunchers is a bookkeeping solution provider – we give clients the choice of doing their own books using our software as part of a managed service (where we become the bookkeeping manager) or we do the books for them.
Q: How did you Get involved in the bookkeeping business?
A: My background is a tax accountant, having trained with Price Waterhouse in Windsor UK. After leaving in 1991, I set-up and ran my own accountancy business and from this had the idea to develop my own bookkeeping software because my micro and small clients struggled with the off the shelf [bookkeeping] packages.
Comment: One interesting point that Mr. Harper brought up in his interview is that his franchise involves the license of certain book keeping software. Mr. Harper considered expanding his business through a "license structure" only but ultimately decided to proceed with the establishment of a franchise system. When evaluating a licensing structure as an alternative to franchising there are a number of factors that should be considered, including the fees that will be charged and the degree of control that will be exercised over the franchisees / licensees.
Q: Are your franchisees required to have Prior Experience with Accounting or Bookkeeping?
A: We decided to franchise about two years ago offering 350 territories in the UK. The first franchisees are accountants who have launched Crunchers on the side of their accountancy practice. We also have a few bookkeepers and are now offering the franchise to [individuals without an accounting background].
Comment: This is a critical issue for the start-up franchisor and established franchise systems - that is, what is your criteria and requirements for selecting a qualified franchisee. Be selective, set clear guidelines as to the types of franchisees that you will approve and reject those that do not meet your select criteria. Selecting / approving an unqualified franchisee is costly mistake that creates a number of legal and business issues that will drain the resources of your franchise system.
Q: What advice would you give to successful business owner about starting a franchise?
A. Running a franchise business is a separate and probably a completely different business to the business they are thinking of franchising. So, treat it as such and make sure you have the right funding, skill set team, systems and resources.
• Look at all other options of expanding so you can justify franchising as the best option because it is not easy.
Comment: As to this point the advice of Mr. Harper is extremely instructive for those looking to start a franchise. Prospective franchisors must recognize that once you "start a franchise" your primary obligation becomes that of a "franchisor" and you are no longer the operator of a business. Keep in mind that the "franchise business" is very different that the underlying business that you are franchising. In Mr. Harper's case once he established a franchise system he stopped operating a "bookkeeping business" and became the operator of a franchise system. Another major point that Mr. Harper mentions is "funding" when establishing a franchise system, simply preparing and registering your "legal documents" is not enough. You must possess the necessary capital and resources to establish the systems, products and procedures necessary to support your franchisees and to manage the development and growth of your franchise system. Franchise consultant Joel Libava offers some great pointers and information about this issue (what it takes to establish a franchise) in his article "Do you Really Want to Franchise your Business".
Thanks to Bob Harper for sharing his experiences with us and, as always, I look forward to hearing from Bob in the future. If you are a start-up franchisor it would be great to hear about your experiences on these topics.
Disclaimer: Please note that our reference to a particular franchise should not be viewed as an endorsement of a franchise or a franchise opportunity. At the New York Franchise Law Blog we do not recommend or solicit the sale of franchise opportunities.
For the "start-up franchisor" (and even established franchisors) determining the appropriate franchise fee and royalty structure for your franchise system is a critical task that will have long standing implications. The fee structure that you establish will serve as the primary source of revenue for your franchise system and will represent one of the most significant "expenses and obligations" on the part of your franchisees. Set the fees to high and you risk franchisee and, ultimately, franchise system failure. Set the fees too low and you risk "franchise system" failure resulting from your inability (as the franchisor) to properly support, develop and expand your system. 
