Franchising

Fran­chis­ing is a flour­ish­ing indus­try boast­ing near­ly 1,000 brands in a mul­ti­tude of dif­fer­ent sec­tors. The busi­ness com­mu­ni­ty now takes fran­chis­ing very seri­ous­ly and the indus­try con­sis­tent­ly shows 90% of fran­chisees report­ing prof­itabil­i­ty. The advan­tages of own­ing your own busi­ness are obvi­ous but so too are the risks. The fran­chisee is tak­ing less of a risk than start­ing his or her own busi­ness and less than 4% of fran­chis­es fail for com­mer­cial rea­sons. This is because they are oper­at­ing under an estab­lished and proven busi­ness mod­el and sup­ply­ing or pro­duc­ing a test­ed brand name.

Fran­chis­ing is essen­tial­ly the per­mis­sion giv­en by one per­son, the fran­chisor, to anoth­er per­son, the fran­chisee, to use the franchisor’s name, trade­marks and busi­ness sys­tem in return for an ini­tial pay­ment and fur­ther reg­u­lar pay­ments.

Each busi­ness out­let is owned and man­aged by the fran­chisee. How­ev­er, the fran­chisor retains con­trol over the way in which prod­ucts and ser­vices are mar­ket­ed and sold, and con­trols the qual­i­ty and stan­dards of the busi­ness.

The Advantages and Disadvantages

The costs

The fran­chisor receives an ini­tial fee from the fran­chisee togeth­er with on-going man­age­ment ser­vice fees. These will be based on a per­cent­age of annu­al turnover or mark-ups on sup­plies and can vary enor­mous­ly from busi­ness to busi­ness. In return, the fran­chisor has an oblig­a­tion to sup­port the fran­chise net­work with train­ing, prod­uct devel­op­ment, adver­tis­ing, pro­mo­tion­al activ­i­ties and a spe­cial­ist range of man­age­ment ser­vices.

Financing costs

Rais­ing mon­ey to finance the pur­chase of a fran­chise is just like rais­ing mon­ey to start any busi­ness. All of the major banks have spe­cial­ist fran­chise depart­ments. You may need to watch out for hid­den costs of financ­ing. These could arise if the fran­chisor obtains a com­mis­sion on intro­duc­ing you to a busi­ness pro­vid­ing finance or a leas­ing com­pa­ny for exam­ple. Of course these only rep­re­sent true costs if you could have obtained the finance cheap­er else­where.

Choosing a franchise

Finding a franchise

The British Fran­chise Asso­ci­a­tion (BFA) is like­ly to be a sen­si­ble start­ing point.

The offi­cial online part­ner of the BFA is whichfranchise.com which lists the lat­est BFA approved fran­chis­es.

A direc­to­ry of all fran­chis­es avail­able in the UK is avail­able at franchise-uk.co.uk/franchises-directory/

Hav­ing nar­rowed down your choice, you will then need to think about con­tact­ing a short­list of prob­a­bly five or six fran­chise com­pa­nies ask­ing them for fur­ther details. This should include pro­jec­tions of the like­ly lev­el of busi­ness as well as a draft con­tract.

If the fran­chise is a good one there are like­ly to be a num­ber of appli­cants. You will need to sell your­self as the ide­al appli­cant to the fran­chisor which will include pro­vid­ing ref­er­ences as well as putting for­ward a strong case as to your suit­abil­i­ty as a fran­chisee.

The contract

The con­tract will form the basis of all fran­chise agree­ments. It should ensure that you run your busi­ness along the lines set out by the fran­chisor. The fol­low­ing areas should be cov­ered:

• the name and nature of the busi­ness
• the geo­graph­i­cal ter­ri­to­ry where the fran­chisee can use the name
• how long the fran­chise will run
• the fees (both ini­tial and on-going) that will be charged
• what hap­pens if the fran­chisee wants to sell or either the fran­chisee or fran­chisor want to end the agree­ment
• the terms of the rela­tion­ship, specif­i­cal­ly that the fran­chisor will pro­vide train­ing, adver­tis­ing etc and that the fran­chisee will abide by the rules laid down by the fran­chisor.