| Frequently |
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Questions |
Franchising is becoming an increasingly popular
business model, but for many this is still an unknown
quantity – particularly in Estate Agency. Here, in
layman’s terms are the answers to some immediate
questions. Serious candidates will want to contact
Reeds Rains direct to discuss.
- What exactly is franchising?
Technically a franchise is a licence granted to an individual or firm to run a business in an assigned territory using another firm’s proven brand and systems. In reality, while it is all of these things, it is also a franchise between the franchisor and the franchisee which, although underpinned with a legal franchise agreement, is dependent for its success on the delivery of the products and services by the franchisor and the continuing commitment and motivation of the franchisee.
- What costs are involved in franchising?
Specific to a franchise are the Initial Franchise Fee, which is paid on completion of the signing formalities, and thereafter a monthly management service fee or royalty paid as a percentage of gross revenues earned. In estate agency franchising this can be as much as 14%. In the case of the Reeds Rains Franchise this figure is fixed at 8%.
- What is mandatory and what is optional?
The appeal of franchising is the liberating opportunity to "run my own business" but also to work within a proven system. The driving idea of The Reeds Rains Franchise is to recognise this while providing a brand, network, back-up and support. To get the 'best of both worlds' there are inevitably some elements of commitment - both legal and commercial - to which Franchisees are obliged to adhere. Clearly usage of the Reeds Rains Brand is prescriptive as variations would be commercially pointless. The technology platform - by it's very nature - only works if all specifications for hardware, software and communications are totally consistent. Origination of financial mortgage and property management services are now governed by rigorous compliance rules and the Reeds Rains Franchise specification for both these business activities are tightly configured to protect Franchisee and Franchisor alike - but are also commercially more beneficial to Franchisees than going it alone. Similarly, originations of conveyancing, overseas homes and other related services are directed through the relevant Reeds Rains operating divisions, but the upside is that referral fees reflect the financial 'clout' of the Franchisor.
- Are there any other franchise costs?
It is common in some estate agency franchises to introduce additional charges for technology, training etc. and require franchisees to buy through a central buying system. The principle in Reeds Rains Franchise is simple – no additional charges unless these originate from a third party supplier in which case these are passed onto the franchisee at the same competitive cost borne by the Reeds Rains organisation itself. There is also no obligation to participate in the buyer programmes - although again it is likely that Reeds Rains will obtain lower prices than individuals can achieve by themselves.
- I can see it works in McDonalds, does franchising really work in the service sector?
The world of estate agency is becoming ever more complex as the industry has to embrace new concepts in marketing and applied technology in a competitive environment. There is also the increasing burden of regulation, both specific to the property sector and generally in recruitment and compliance. In particular the Home Information Packs are now a reality. In the light of these developments, the concept of operating a service sector business under an established brand with full regulatory and commercial backup and support becomes ever more compelling.
- So what are the critical success factors for a franchise?
In the case of estate agency it boils down to the right people and the right office location. If the franchisor delivers their side of the bargain, the success of the business thereafter will be down to your motivation, your commitment, your skill applied consistently to achieve first class results. The relationship between the franchisor and franchisee is also important. Both sides must feel good about this from the outset and it must genuinely continue to be an ‘I win, you win’ proposition throughout.
- How much money will I need to set up an estate agency franchise?
In addition to the initial franchise fee there will be other set up costs for the office in particular re-decoration, wiring, lighting, fittings, furniture, computers and phones. From this point there is also the need for working capital to run the business until the income streams materialise. As most people are aware, 90 days can elapse between listing and completion – the point at which the agents receive their commissions. Although this will vary according to the office size, location, current condition etc., we expect that franchisees will need to raise about £50 – 60k. Reeds Rains has established arrangements with two of the leading banking franchise divisions who are prepared to lend between 50% - 70% of required funding subject to satisfactory conditions being met. On this basis individual franchisees should be looking to provide between £20 – 30k from their own resources.
- Why is Reeds Rains engaging in franchising?
Reeds Rains has always been a growing organisation and expansion of its office network through franchising is consistent with the implementation of that strategy; it also provides a bigger distribution platform for ancillary services such as conveyancing, financial services and surveys, overseas homes etc. This of course is also beneficial to the franchisee.
- Is Reeds Rains selling its existing offices to Franchisees?
No. The Franchise development programme is a Growth, not an Exit strategy.
- How long is the term of a Reeds Rains franchise?
The initial term is for five years with an option to renew at the end of that period subject to the franchisee’s continued compliance with the terms of the franchise agreement. Reeds Rains charges a very modest renewal fee for extensions of its franchise.
- Tell me more about the Reeds Rains franchise Agreement
Firstly a general point. The franchise agreements are always the legal safety net underpinning the obligations of both parties. While this is an agreement between two parties, certain clauses and obligations are in place to protect the Reeds Rains network as a whole. The Reeds Rains Franchise Agreement has been drawn up by lawyers approved by the British Franchise Association and their thumbprint of approval means the agreement will be both well balanced, comprehensive and current.
- What do I get apart from the brand?
A franchisor delivers backup support and expertise to its franchisees in addition to the brand. In the case of the Reeds Rains Franchise the benefits are too numerous to list here but can be classified under the following headings; ‘plug-in’ access to additional business activities and cheaper resources, training, technology, marketing, business advice and the ability to be able to refer business within a large regional network. Full details of these will be made available to serious prospective members.
- Are there any restrictions?
By definition, franchises are characterised by the setting of territorial limits within which Franchisees can market the services and each Reeds Rains franchise defines these territorial limits; mainly by postcode but reflecting the natural boundaries of property market places. The size and location of Territories are established at the outset by reference to historic property sales data both volume and price - and competitor activity. The objective is to provide the Franchisee with a sufficiently large marketplace to make an honest profit with a sensible, achievable market share. Reed Rains partners are debarred from participating in any other estate agency businesses outside The Reeds Rains Franchise; this is common sense and standard to all franchise systems; franchisees clearly could not be allowed to use the system skills and advice outside the chosen franchise in a common or competing business. Franchisees are at liberty to engage in other business activities outside the property sector subject to demonstrating total commitment to developing the designated franchise office.
- Can I open additional offices?
The Reeds Rains Franchise mission is to ‘Help Its Members Grow Their Businesses’, so the opening of additional offices is a natural extension of this and an obvious way forward. The long term view will form part of the discussions prior to signing. If commercially judicious, franchisees may open additional offices but each is subject to its own franchise agreement. Reeds Rains Franchises will offer options on additional office locations from Day 1 subject to an option agreement and time limits.
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Do I need to be an estate agent?
No. The UK residential property market is currently an unrestricted and turbulent operating environment. A Reeds Rains Franchise will certainly suit an existing estate agency operation or ambitious employee wishing to set up on their own. Entrepreneurs from outside the sector would, if suitably qualified, be required to recruit experienced personnel.
- Do I have to participate in the other business activities?
Residential Sales is the core business activity of an estate agent, the appeal for Reeds Rains partners is that they can participate in additional business activities on a "plug and play" basis without the time, effort and money required for invention and long lead-in times. As mentioned above, the Reeds Rains Franchisee is obliged to engage in these optional activities through the established Reeds Rains systems on a referral basis.
- What’s the process for becoming a franchisee?
The process is simple, both sides need to agree to a series of meetings to establish mutual intent and reach a point where an informed decision to proceed can be made. This involves an interview process to establish the credentials of the prospective franchise, presentations of the Reeds Rains Franchises systems together with validation visits, a basic financial forecasting session to establish one-time set-up costs and future profits based on local market assumptions and other criteria. Once there is a handshake, there follows a comprehensive clause-by-clause contract review followed by completion of the formalities. The and other criteria. Once there is a handshake, there follows a comprehensive clause-by-clause contract review followed by completion of the formalities. The implementation programme follows immediately. If both sides are serious the process from enquiry to signing may take four to six weeks.
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Describe the implementation programme
This depends on whether the franchisee has office premises already in place. If so, a launch date is set and the implementation programme covering office profiling, recruitment, pre-launch marketing, technology integration, induction training, financial plan etc. is implemented with specified responsibilities on both sides.
- I don’t have premises but want to proceed.
This is quite a common situation. If both sides want to move forward, we ask the franchise to pay only a proportion of the initial franchise fee and will help the franchisee acquire offices including advice on lease negotiations and planning. The partial payment of the initial franchise fee covers the franchisors costs for this commitment.
- I’m interested, I think I qualify, what do I do next?
Look yourself in the eye first, and tell yourself that you have addressed the "who, what, where, why, when, how and how much" associated with this commitment - and then make contact with us by phone or e-mail. We understand you may still be currently employed and assure you of total discretion and confidentiality.
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