Opening a Franchise

By Rudi Fieldgrass / 09 Sep 2016

Aesthetic franchisor Rudi Fieldgrass shares advice on franchising a clinic

My experience

Whilst EF MEDISPA has only recently offered franchise opportunities to aesthetic practitioners, the business model has been ten years in development. Each new clinic presented new challenges and the opportunity to refine the business model by trialling new equipment and developing new treatment protocols. Apart from the technical side, as the business progressed and new locations were added, marketing skills were developed in-house, and a specialist team of interior designers was built. As the business has grown, the core values of patient care have been maintained. The challenge has been to preserve the personal clinic feeling of a small family run business, whilst developing professional management structures. The idea of offering franchises to aesthetic practitioners and investors arose from an interest of overseas clients, who appreciated the unique business model and wanted to offer the same service in their home countries. Then, when EF Medispa was awarded, amongst other awards, Best Clinic Chain in 2011 and Best Clinic Reception Team in 2012, followed by Best Clinic Chain in 2015, potential investors within the UK approached and expressed interest in licensing the EF MEDISPA brand and benefiting from the exceptional training and the strong marketing presence. For anyone hoping to franchise their clinic, I would advise spending time, as we did, to develop a strong brand identity and establish your clinic as a leading business within the industry. Once this has been achieved, you can then progress to the technical side of approaching potential franchisees and structuring your franchise model.

Introduction: why is franchising a good option?

Many aesthetic practitioners dream of having their own business, however, they may have little understanding of how to run it profitably, nor realise how much funding they will require. Of course, for the true entrepreneur, just being your own boss is half the appeal, but for the slightly more risk adverse, franchising offers the opportunity to own and operate your own business with the benefit of a proven business model, recognised brand, training, support and a myriad of additional benefits, which may include anything from increased buying power, to a supportive network of franchisees sharing best practice and pooling resources for national marketing campaigns. Currently, the UK franchise market turns over £15.1 billion, with 97% of them being profitable,1 which offers a strong indicator of the potential success that could be had through franchising.

What is a franchise?

In essence, franchising is actually quite a simple business arrangement. The owner of a company may choose to grow his or her business by offering suitably qualified individuals the opportunity to purchase the right to copy the company’s business model and trade under its brand name in a clearly defined geographical territory. These people are known as the franchisor and franchisee, respectively.

One of the main differences between franchising in industries such as food and beverage or office services, compared with the aesthetics sector, is the preference that the franchisee should have a medical qualification or experience in the aesthetics industry. This is not an essential requirement, but, if not medically qualified, the franchisee needs to have a good understanding of the specific challenges of running a clinic, and business experience in managing a team of professionals, as they will be organising a staff of doctors and/ or nurses. In my opinion, it is best business practice for a franchisor to provide the franchisee with:

A legal franchise agreement detailing precisely the responsibilities of both parties. The main purpose of this is to protect the brand. This agreement may cover anything from nominating equipment and product suppliers, providing brand guidelines for signage and interiors, approving marketing and promotional campaigns, and insisting on minimum trading standards.

A clearly defined (normally exclusive) territory in which to operate. Franchisees may have preferences for location based on where they live or their knowledge of the local community. However, although the franchisee may have a preference for a particular area, ultimately, it is the franchisor who will have the experience to select the right location, based upon their business model.

A comprehensive operations manual detailing precisely how to operate every single aspect of the business. This will contain everything that the franchisee needs to know on how to run the business. Examples of the type of points it includes are; a definition of the responsibilities of the various staff positions; an outline of the treatment protocols; a description of clinic opening and closing procedures, and complaint-handling advice.

Initial training that should cover both the mechanics of operating the franchise and how to run your own business.

Ongoing support to ensure the franchise has the greatest possible chance of thriving long term.

Where to start

According to the British Franchise Association, there are more than 900 franchisor brands operating in the UK, but relatively few of these are in the aesthetics sector.1 One reason for this may be that unlike the food and beverage sector, for example, there are not dozens of strong national brands. The prospective franchisee needs to be very honest with themselves about what they want to achieve. If the goal is to make millions, the initial capital investment will be substantially more than if they simply want a business that allows choice of hours and freedom to work around family commitments.

Financial and legal implications

Initial costs and profit

Assessing whether or not you can afford a particular franchise requires the franchisor to be very clear about every cost involved. Many franchises will lead its marketing with the franchise fee that is payable upfront, which excludes VAT and working capital, and provides the license to trade within the exclusive territory. It also contributes to the cost of the initial training by the franchisor, any collateral materials, and support in the setting up and launch of the franchised clinic.2

Virtually all franchises work on the basis of the franchisee paying the franchisor a fixed percentage of the turnover (sales revenue excluding VAT), which normally ranges between 5-10% and is dependent on the business type. This should not be confused with the marketing fee, which is also a fixed percentage contribution and, in my case, is specifically used by the franchisor for their general advertising campaigns. In my experience, this will normally be 3% of the turnover. The franchisor will be able to describe the financial model illustrating the potential profitability, but, ultimately, the financial success will be governed by many factors, including how well the franchisee runs the business. The franchisor provides the template, a successful business model and support in areas of training and marketing, however, much of the business risk, as well as the upside potential, falls on the shoulders of the franchisee.

Working capital

Starting any business requires working capital; the money needed to start paying the bills (rent, electricity, wages, stock, money to survive on personally until the business can provide the owner with a salary or drawings); the cost of physically setting up the business, which will include fitting out the premises and purchasing specialties equipment; legal fees; accountancy fees; launch marketing budget; advertising for staff. The prospective franchisee will need to demonstrate that they have sufficient resources to cover set-up costs and initial working capital. The franchisor may be able to assist by introducing sources of bank or lease finance, but it is the franchisee’s business and they will be responsible for all the normal day-to-day running costs of the business. Initial discussions with the franchisor will involve a detailed understanding of the financing required.

Loaning and leasing

One of the great benefits of choosing a franchise over starting a business from scratch is the willingness of the banks to offer funding to strong candidates who can demonstrate a good business plan. Based on our experience, a High Street lender can provide up to 50% financing for fitting-out costs and working capital where they are satisfied with the business model of the franchisor. Again, in our experience, a leasing company can provide 75-90% financing, secured on the equipment, when the financial standing of the franchisee is satisfactory and where the leasing company has a good knowledge of the re-sale value of the specialist equipment. In many cases, franchisees can borrow up to 70% of the total funding required.

Legalities

In terms of legal issues, the most important advice for anyone joining a franchise is to make sure the franchise agreement is fully understood. The only way to achieve this is to employ the services of a solicitor who has direct franchise experience. Many prospective franchisees make the mistake of relying on their family solicitor. Negotiating the franchise agreement is not the same as signing a lease on a medical practice. Although, in the majority of cases, there will be standard terms in the franchise agreement that can’t be altered, it is vital that a competent solicitor can explain the legal implications of the agreement. Franchise agreements can be for five years with an automatic renewal, and some can be for as long as 20 years. Unlike a salaried job, it is not possible to decide simply one day to call the boss and hand in one’s notice.

Challenges

There are challenges in opening any type of business; in the aesthetics sector, the normal challenges are there, but in addition, there is a host of compliance issues, best practice and ethical guidelines that come into play. Again, the franchisor can help, as their business system will already be coping with these issues and have systems in place to ensure regulatory compliance.

Choosing equipment

Although the franchising model is not industry specific, there are particular aspects of the aesthetic industry that may influence a franchisees’ decision on what franchise brand to choose. The franchisor will always recommend equipment, but selecting a laser or radiofrequency device is a little different to a choosing a fish fryer and can require specialist advice. Some equipment manufacturers offer a franchise model, selling the same equipment to all franchisees, while other franchisors will do an independent review of the market and base their recommendations to their franchisees on their own experience of different equipment.

Ethics

Another aspect of the aesthetic industry is the ethical dimension, which is so important when a practitioner is recommending an elective treatment. Ultimately, the recommendation must rest with the practitioner, but the franchisee should make their choice of which franchise brand to purchase based on their comfort level with the ethical guidelines and regulatory compliance built in to the franchisor’s business systems.

Employment

Staff issues are another area where a franchisor will be able to help the franchisee. Whilst ongoing training is vital, recruiting a good team is an area where many sole practitioners lack the experience and skill to make an appropriate selection of suitable personnel, which contributes to challenges when the practitioner endeavours to expand their business by adding a broader range of aesthetic treatments. The areas where the franchisor can help in recruitment include: selection of suitable web portals for job posting; shortlisting suitable candidates from CVs; joint interviews; trade testing of therapists or nurses for specific treatments. In many respects, a franchisee starting from scratch with a new franchisor is a far easier proposition for the franchisor than taking an existing business and re-branding it, because the franchisor has had no input on the staff that are already in place.

Summary

It is often said that investing in a franchise is being in business for yourself but not by yourself. This is true in so far as the franchisor is very much the franchisee’s business partner with a vested interest in the franchisee’s success. Whilst the franchisor is there for support, the franchisee needs to make sure that the people closest to them – family and dependants – support the decision.

Owning a franchise probably means working even longer hours, so gaining the support and understanding of those who will be impacted by the decision is essential right from the start. The rewards should come with hard work and following the franchisor’s successful business model, but they rarely come overnight.

The continuing growth in the aesthetics industry means that there will be profitable opportunities for running one’s own business. A careful choice of franchise partner is one way to benefit from these opportunities whilst limiting the business risks.

Elena Hunt and Mark Willis, franchisees of EF MEDISPA

“We had decided for some time that the aesthetics business was definitely our business of choice, providing the platform to combine our passion for making a positive impact on people’s lives with the opportunity for commercial success. The one potential stumbling block was that, in spite of our passion for the industry, neither of us had any practical experience of operating a successful clinic – a franchise seemed to be the obvious answer. We started with the understanding that we wanted to offer the best that was available – looking at the number of awards and accolades gained over the last 10 years, EF MEDISPA was the obvious choice.”

References
  1. Franchise industry research (UK: British Franchise Association, 2016) <http://www.thebfa.org/about-franchising/franchising-industry-research>
  2. Understanding franchise fees (UK: British Franchise Association, 2016) <http://www.thebfa.org/join-a-franchise/understanding-franchise-fees

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