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Faith in franchises

publication date: Oct 13, 2011
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Belvoir LettingsFranchising is becoming an increasingly attractive way to compete in estate and lettings agency, attracting both existing agents and individuals new to the business. However, it’s by no means a guaranteed route to riches; like any business start-up, a new franchise takes time, hard work and dedication to make it profitable. So what draws the prospective business person to a franchise?

Major attractions One major attraction is the branding. Edward Foley, a Winkworth franchisee in Wimbledon, says that, “Being able to tap into the resources of the brand really helped us. Just operating as Foley & Travers we wouldn’t have got where we are.” But that’s not all franchisees are buying into; for a start, there’s a tried and tested management system behind every franchise scheme.

Dorian Gonsalves, MD at Belvoir, says that Belvoir’s systems and operational processes can help franchisees achieve consistent success – there’s no need to find out what works by trial and error. “Having a strong system that works is hugely important to us,” he says; “lettings agency isn’t a unique product, but it’s our consistency that works for us.”

Many of Belvoir’s franchisees are ex-forces, like Andy Campbell, Belvoir’s franchisee in Moray, who decided on a
franchise when he left the RAF. “Rather than doing it myself with no real business experience, I thought the safer way would be to go with someone bigger,” he says, and he’s happy that Belvoir gave him the support and systems he needed. But he warns there’s still significant work to do. “You’re given a model, but you can’t just sit back and think the market’s going to come to you.”

Dennis Roodhardt, Martin & Co’s Folkestone franchisee

Dennis Roodhardt, Martin & Co’s Folkestone franchise, admits that as an expatriate Dutchman, he wasn’t completely up to date with all the UK laws and regulations, but says franchising helped him get it right. “A business is just systems and procedures, in essence, and I was given that with the franchise,” he says. “It’s like cooking, I’m not Jamie Oliver but if you give me a good cookbook I can do something good with it.”

While the franchise can deliver systems and procedures that work, though, there do need to be limits to how far the business is controlled from head office. Neil Morris, Stafford franchisee for Your Move, says freedom of pricing is vitally important.

“We’ve had to compete against some of the big guys in Stafford,” he explains. “If we didn’t have the freedom to discount our commissions, it would be too easy for them to snipe, and win instructions by undercutting us.”

He is also glad that he had the freedom to choose when he was ready to start handling lettings as well as sales; if he’d done so right from the start, he believes he would have been “spinning too many plates.” In the end, he added rentals after the business had been open a couple of years, and says “there was no pressure from Move to do so any quicker.”

Funding and support In this economic environment finance can be a problem. Many recent franchisees have been self-funding. Dennis Roodhardt, on the other hand, did secure bank funding and says he would have found that much more difficult without his franchisor.

“We started our business at the start of the credit crunch; despite that, Martin & Co helped us get all the finance we needed at very good rates. They have a dedicated finance manager and they’ve done an absolutely brilliant job.”

Dorian Gonsalves, BelvoirA good franchisor will also offer the head office resources of one of the major corporates. James Trimble, New
Franchising Manager at Winkworth, says “We have various departments and they talk to franchisees on a daily basis - what do they want, what do they need, what can we offer?” Winkworth help with marketing and PR, training, even pitches for major instructions through its country house department.

The greatest need for support comes when setting up and establishing the business. Belvoir puts a great deal of effort into creating a supportive process to get franchisees through those first months, says Dorian Gonsalves. Each franchisee has a one to one business mentor from Belvoir’s senior ranks who makes weekly phone calls and regular site visits in the first six months to check on progress and solve problems.

A responsive support centre is also important; Gonsalves says some franchisees make up to 15 support calls a day to start with, often on very basic issues. But franchisees do “manage to wean themselves off this support in the first six or seven months”. Neil Morris extols Your Move’s helpful attitude, “Even the network branches are more than happy to let us go and talk to them, see how they do things, if there are ideas we can use; there’s no ‘them and us’”.

He also gives Your Move credit for helping him plan the business properly. Crucial to his business plan was getting an expert valuer into the business, “so we could be up and running as quickly as possible.” The right strategic advice can make a big difference to a new business, and Dennis Roodhardt was impressed by the resources that Martin & Co was able to deliver.

“During the process of drawing up your business plan they look at your strengths and weaknesses and they advise you about putting together your team. One of my issues was I needed to get an administrator in straight away.” More recently, he’s received help recruiting a branch manager for his new office in Hythe; Martin & Co screened applications and checked references before showing him the candidates, saving a huge amount of his time.

Roodhardt says an experienced operations director at the franchisor is crucial to making the business a success, and he rates Martin & Co highly. “They help me take a critical look at the business, suggest ways I can improve. They know how to drive businesses forward.” Sometimes, though, franchisors can’t offer as much help. 

Paul Rogers says that while Reeds Rains has delivered corporate workload that has helped his franchise succeed (he was a Reeds Rains manager before taking on the franchise, so he knew the system), he doesn’t think his franchisor was particularly responsive when the market turned down.

“We had to amend all our expansion plans for the first few years after Northern Rock. In terms of financial support there wasn’t really anyone there, and I think a few franchises fell by the wayside. It was up to me and my business partner Laurie to cut costs,” he says. Generally, he characterises the Reeds Rains response as “if you need help shout, as opposed to them coming along and helping.” 

Edward Foley has been particularly pleased by the amount of effort Winkworth puts into PR, and the impact that’s had on his business. Early on, Winkworth’s PR department got them a double page spread in the Evening Standard’s Homes & Property section, and helped them get stories in the Times and Telegraph. He says, “We would never have had the time to do all that PR.” There are also huge economies of scale when it comes to marketing. “We would have paid far more for advertising, that was a huge saving right away.”

His experience is echoed by Andrew Cranshaw, Reeds Rains franchisee in Ashton under Lyme. He believes that while he has to pay a monthly franchise fee, Reeds Rains helps him keep his cost base low to cope with the tough market. “We get access to all the portals at a corporate rate; it’s worth hundreds of pounds to us
every month.”

He also points out that Reeds Rains also has a fair amount of corporate business that comes franchisees’ way – it lands on your plate, rather than your having to go and find it.” 

Putting a number on the savings is tricky – but Mark Harrison, Franchise Director for the south of England at Xperience, says the economies of scale gained on “everything from portals to hire cars to photocopiers” can save his franchisees £10-12,000 a year.

Questions and choices
kevin hollinrake, HuntersCreating successful franchises begins with the selection process; franchisors need to ensure that their franchisees are adequately prepared for starting up. It can take some time; at Belvoir, Dorian Gonsalves says,
“from the point of meeting someone for the first time to their opening an office, it’s a five or six month process”.

At Winkworth, out of three or four “good quality conversations” only one or two will end up as a franchise. And Kevin Hollinrake, MD of Hunters, says “We are very selective in terms of who we choose to be a franchisee, though you don’t always get it right.” Potential franchisees need to do their own research. Neil Morris says “I spent nine months investigating franchises before shortlisting two.”

He was particularly impressed that Your Move allowed him to visit both franchised and corporate branches, and to select those he wanted to see. He warns that applicants need to ask the right questions and ensure
the offices they see are typical. “It costs about £100,000 to start up, and that’s a lot of cash to invest before you find out that they’ve showed you their star branch and the others aren’t making anything like that amount of money.”

XperienceGetting the right location is also essential.  Andrew Cranshaw says starting with a name that’s completely unknown in the area is unhelpful, but there also needs to be enough space around the franchise to grow in future. 

He’s happy with his location in Ashton under Lyme; “While there are more than twenty Reeds Rains branches around Manchester, so the name is known, there are very few in this particular area of the city,” so he hopes to be able to add further branches as his business matures. 

Franchisees often harbour greater ambitions than running a single franchise and some franchisors – though not all – support multi-branch franchise opportunities. Paul Rogers, for instance, has opened a third Reeds Rains office and he is also interested in the opportunity to expand with Reeds Rains’ higher end brand, ‘Cream’. Meanwhile Andy Campbell says he has taken over the business of three sole traders in the local area. “There’s no doubt in my mind that they went down the wrong route going it alone”.

Training and networking
Training is vital to give franchisees the best chance of success. Belvoir has a three week induction course, including practical work and classroom training in lettings subjects and business management. At Xperience,
business management is included - “managing cashflow, setting something aside for the taxman, being properly funded, all things they need to think about,” says Mark Harrison.

Winkworth runs its own Academy which provides training at the start of the franchise and ongoing. Edward Foley says with long agency experience he didn’t need much training, but it is excellent for his staff. “We’ve mainly taken on people with no experience, because we can train them our way,” he explains. “If we were starting up as independents, we couldn’t possibly do as much training as we currently offer.” He believes this gives Winkworth franchises a particular advantage in attracting graduate applicants, who value the training offer.

Another issue for many is that it’s the first time they have run their own business. Kevin Hollinrake says “It can take a while for people to adjust; the first few months can be a bit of an eye-opener.” But he believes that a good franchisor can support new franchisees through this stage. “Self belief is incredibly important when you’re self-employed,” he says, so Hunters provides coaching, not just training, for its franchisees. “We work on a process level but we also work on a personality level.” Isolation can be a difficulty for franchisees used to working within a corporate environment. For the first time, they don’t have colleagues to talk to or regular feedback from a manager. Most franchisors provide a network to help franchisees feel part of a team, and deliver more tangible results. Mark Harrison says Xperience’s regular meetings allow franchisees “to share experiences and feel they are not alone.” At Winkworth, James

Trimble says franchisees are encouraged to talk to each other. “You’re on your own but not alone - I know it’s dreadfully corny, but it is very relevant to the franchise network.” Meanwhile Kevin Hollinrake says, “They are never on their own. Keeping morale up is part of our job as franchisors.” Neil Morris believes this can be particularly important in difficult times. A Your Move conference gave franchisees the chance to bounce ideas around on how to improve their income. “It does give you a bit more confidence.Sometimes people have given up and if they’d got 
a bit more support, they’d still be there.”

Denis Roodhardt says, “You don’t only learn from head office;” neighbouring franchises form an important network for him, and he talks to them “if not weekly, it’s monthly.” He has learned a lot from Canterbury, which opened about a year before he did. “If we meet a situation, they’ve already been there.” Now, other, newer franchises are calling him. “We’ve grown aggressively and people are interested in us. We have benefited and now we’re giving back.”

Andy Campbell also praises his franchise network. “It’s saved me thousands of pounds,” he says, “when I’ve had a bright idea and people have said to me, ‘Don’t try that, it doesn’t work’.” He says Belvoir head office also develops new ideas, and – importantly – trials them to make sure they work before bringing them to the network as a whole. “Things we do, the sole traders are doing a few months later. But we get in there first,” he boasts.

     Who is buying franchises? 
Hunters estate agentsWhile until recently most franchises were ‘cold starts’, often with managers who hadn’t worked in agency before, there’s been increasing demand for franchises from those with a property background, and from existing offices looking to rebrand. That differs from network to network; James Trimble says 90 per cent of Winkworth franchisees are from an agency background, but that is exceptional.

He says many agencies feel they’ve reached the limit of what they can do on their own. “A lot of agencies ask how to get into the top end of the market, how to get past the £500,000 properties to the million pound ones?” 

Others are concerned to double or triple their inventories, and believe the Winkworth platform gives them what they need to compete. Mark Harrison says Xperience too is seeing demand from small independents. “They’ve been running relatively successfully, but can’t take the next step - their websites are a bit dated, their marketing needs a refresh, they’ve looked at that and found it will cost £20-50k to do, and instead they can get a whole rebrand and redesign for very little with us, all ready to plug into and at discounted rates.”

Every franchisor charges an up front franchise fee, ranging from under £3,000 in the case of no-branch franchises such as Hunter’s Personal Agent programme, to £25,000 or more. Some franchises in the past (particularly in retail and blue-collar services) have been accused of making a profit by signing up new franchisees, only to let them go under.

Neil Morris says, “Some franchisors that I’ve spoken to, all they seem to want to do is to get their franchise fee out of you, and then the support dries up.” (He’s quick to add that these weren’t in the estate agency sector.) He warns potential franchisees to ask the hard question – “Are you really working for yourself or are you just a cheap way for them to open another branch?”

Dorian Gonsalves believes “the initial franchise fee shouldn’t be making a profit for the franchisor;” instead, he sees Belvoir’s new franchises as an investment, which will pay back through royalties on the franchise’s turnover in the longterm. There certainly is a longterm; Andy Campbell has been with the business for 15 years. James Trimble, similarly, says “Those offices we’ve brought in we hope we can have for 10 or 20 years.”

Reeds Rains The Estate AgentsDespite careful selection of franchisees and support, some businesses fail. At Hunters, Kevin Hollinrake says, about one third of franchisees “need to improve”; of these, about two thirds manage to right themselves. About ten per cent fall by the wayside. At Xperience, Mark Harrison sets the failure rate at around five per cent, saying “we don’t like a franchise to fail, of course, for reputational reasons.”

Ongoing royalty charges vary. Xperience charges 7.5 per cent of turnover; “that’s about the lowest in the industry,” says Mark Harrison, and notes that uniquely, Xperience doesn’t charge its new franchises any royalties for the first year. He expects most to achieve monthly profitability within 12 to 18 months. Winkworth charges an ongoing royalty of eight per cent, and Martin & Co. 9 per cent, while Belvoir charges 12 per cent of gross turnover, and expects profitability within 14-15 months (though one branch turned a profit in just eight). 

Dorian Gonsalves is unapologetic about Belvoir’s relatively high charge. “Franchising is very support dependent,” he says. “It’s all about supporting your network, so you have to ensure you can finance that.” One downside of franchising, though, is that the monthly fee represents a fixed cost that can’t be cut. 

Paul Rogers says, “You’ve got the fixed costs, your premises’ cost and your franchise fee, and there’s not much scope for cutting them.” He says though, that corporate work from Reeds Rains helps him keep the business on track, as has lettings revenue. Is it worth it? Given that the franchise fee can represent a large absolute amount, is franchising worth it? The franchisors say yes – but they have a vested interest. What do the franchisees think?

Andy Campbell believes the administrative and marketing support provided by the franchise frees him up to concentrate on profitability. “To me, it’s worth the money. I want to be out there making money, I don’t want to be sitting in the office making web pages.” Neil Morris warns franchising isn’t a quick route to riches; “If you think you’re going to be a millionaire in the first six months forget it,” he says. “But we broke even in the first year, and on that basis, there’s nothing I’d do different.”

As for Paul Rogers, he has only one regret. Asked if, with hindsight, he would do anything different, he laughs. “Well, I wouldn’t have opened up two weeks before Northern Rock!”