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Franchising/Business Structure

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Question
Hi Mark,

I've got a small business, it's a personal training studio. I have about 10 staff and it's doing quite well. I want to expand, and currently I have the processes and systems to open my 2nd location. I buy the building, pay it off and setup personal training for clients, I give my manager 27.5% of the net earnings and he's happy, I get a lot of freedom. Currently I only spend about 4 hours actually training clients and about 8 hours worth of meetings. My manager takes care of pretty much everything except the marketing and lead gen, which I control.

What I want to do is like what Gordon Ramsey does with his restaurants. He starts one up, puts in a manager...get's it up to speed and profitable...gives the manager a healthy percentage then moves to open another one. Everyone wins...it's not franchising...but I was wandering what this sort of business structure is called? And how it works?

Cheers
Rob

Answer
Dear Rob: Thank you for your question and congratulations on the success of your business.

In the Untied States and in Australia if these three elements are present it is a franchise: A required system of operation, the association with a Trademark and the payment of a fee. Since you gave the Gordon Ramsey example, I'm presuming the training studios will operate under your trademarks and, as you described, your system of operation. Is there any fee being required of the manager? If not, you may not be a franchise but the legal answer isn't always so simple. Could, perhaps, the manager's time commitment be characterized as a "payment". I am not a lawyer but I know some excellent international attorneys I could refer you to.

To answer your question "what is it called" - it almost sounds like a simple commissioned employment relationship but I'm guessing there is more ownership involved in the manager's role or you wouldn't have asked. Other possibilities is that this is a business opportunity or licensing arrangement. Again, I would need more details.

Regardless of what it is called and what it legally is - and we can let the lawyers help figure that out - if you are looking to expand systematically there are several basic structures you will need to have in place.  

You're going to need a strategic plan that considers your competition in the markets where you are interested in expanding. You will want to benchmark your business against your competitors. You will need a proforma to predict what you and your managers can expect to achieve at least over a five-year period. The plan will also consider your personnel needs as your system grows - and you transition from being the owner of a fitness studio to overseeing a chain of businesses.

You will also need an operations manual or series of manuals. The Operations Manual documents your proprietary systems of operation and will be the blueprint the managers use for the day-to-day operations of the business.

You will also need a marketing plan tailored to the manager you are hoping to attract, in the desired geographic area with the requisite skills. This plan would set forth the types of digital, print, social and other media where your marketing will focus.

Feel free to contact me through email at info@ifranchisegroup.com with more details and we can discuss further.

Thanks and Happy New Year
Mark

Franchising

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Mark Siebert

Expertise

How do you determine if a business is franchisable? What must a company do in order to franchise? Is the current economic client conducive to franchising? How fast do franchise companies usually grow? What types of businesses are best suited for franchising? What are the franchise growth industries? Should I license my business? How do I expand my business? Looking for a Business Consultant? What is included in an Operations Manual?

Experience

I have worked with hundreds of franchisors, from start-up operations to corporate giants. A franchise consultant since 1985, I founded the iFranchise Group in 1999 as an organization dedicated to developing long-term relationships with successful franchisor clientele. I am considered an expert in evaluating companies for franchisability and structuring franchise programs. I have personally assisted over 30 Fortune 1000 companies and over 200 start-up franchisors. I am frequently called upon as an expert witness in franchise-related cases, and am widely quoted in the business press. I am a regular columnist for Franchise Times and Entrepreneur.com.

Organizations
International Franchise Association; Canadian Franchise Association

Publications
Franchise Times (monthly column) Entrepreneur.com (monthly column)

Education/Credentials
Northern Illinois University

Awards and Honors
Franchise Times 20 to Watch (2002) International Franchise Association Member Recruitment Award (multiple years) AAFD Supporting Member of the Year; Top Quality Franchising Chairman's Award

Past/Present Clients
Massage Envy; GarageTek; i9 Sports; Milio's Sandwiches; Andy's Frozen Custard; EVOS; Capriotti's Sandwich Shop; Perkins; Ace Hardware Japan; Praxair; Auntie Anne's

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