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Franchising – Guide for Dummies Franchising means running a commercial operation by using a part or all aspects of another business, including its brand, name and products.  In the past this included licensing agreements, with respect to the rights to sell a particular product in a particular market, or some sort of agency agreement, which means the right to run a part of a larger business. A recent meaning is granting of a licence to trade using the same name as the parent company and the right to use all or many of the aspects that make that business successful. Notorious names like McDonald's and Domino's Pizza restaurants operate on a franchised basis. How does a franchise work? There are two persons involved in a franchise agreement, the franchisor who grants the licence and the franchisee that gets the licence to run a business. The agreement stipulates that the franchisee gets everything is needed of the successful franchised business necessary to be successful. This includes everything, starting with branding, designs, supplies, products, and even marketing and advertising support. The support runs for the entire length of the franchise agreement and this period is usually stipulated at the beginning. The franchisee agrees to pay for the right of using the franchisor’s business. A usual practice is to make an upfront payment and successive staged payments as the business develops. Some franchise agreements may state that the franchisee must pay more in case the business gets more successful, but usually there is a regular flat fee. General aspects The most important aspect of franchising is its limited risk, as the business is not a new one. This means people already know what your business is about. The dark side of the business is that the franchisor will often try to dictate how you have to run the business. If you imagine you can be your own boss and taking a lot of decisions about how to manage things, you should be disappointed, as you have less freedom than you thought because the legal agreement is very strict and spells out what you can and can't do. This is a sacrifice you have to make in order to enjoy the advantages of this kind of business. The advantages include national advertising campaigns, perhaps on TV, which are entirely unaffordable for most small businesses. You may, however, have to pay for a part of this marketing activity. Be careful about what exactly you are supposed to pay for. These costs have to be planned. Advantages Free training, development for staff, and other kind of help to keep the business running are offered by the franchisor. Customers are much easier to find unlike the situation you were starting from scratch. Disadvantages You don't really have full control with respect to the development of the business. Limitations could occur about what advertising and promotions you can run. There is no guarantee that your business will work. How much does it cost to run a franchise? Costs are different, as well as franchises. Pay attention to franchisors who advertise get-rich-quick schemes and other types of fraudulent businesses. You may lose money when entering such businesses. |
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Franchise heaven or hell? |
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Ripped off by franchising? Franchising is definitely not a short-cut to your fortune. It takes hard work, a lot of dedication and commitment to make it successful, just as it happens with any other business idea. Take Mcdonald’s as an example, £200,000 and you will probably not break even until five years later.
You have obvious advantages in franchising like leveraging the brand of a bigger company and benefiting from the help that they can give you, which means design, advertising, marketing, advice for sales and training. Many companies that operate as franchises in the United Kingdom belong to the British Franchise Association. This is an accreditation organization that makes sure potential franchisors follow a set of guidelines. But if a company is not a BFA member, it does not necessarily mean they are disreputable. It only means they won't have followed the guidelines of the association and you would better take professional advice to make sure you don't get ripped off. Things to know before choosing a particular franchise: A question you should ask yourself is if the business is viable. There is no use in buying a franchise in a country that is not prepared for that product, or competition is too intense. If you decide that the franchise opportunity is really good, then go for it! Then what about being legal and ethical? Plenty of scam ideas, with fraudulent offerings of important sums of money for “work at home” franchises abound everywhere. These are certainly not proper franchises and, in most cases, are simply ways of stealing money from people. Is there anyone else succeeding with the same business idea? You have to find out if anyone else operates the same franchise in the UK. If they are successful and if the costs and revenues anticipated by the franchisor are realistic, then it is a good idea. You should be able to have a look on the financial records of the franchisor's business and make an idea about how it works. If the business is successful and financial projections coincide with the promises you have been made, it should be all right to buy it. You also should investigate if the business seems capable of supporting the marketing, advertising and training that were promised to you. You also should go to a national franchise exhibition where many other business opportunities are gathered under one roof. Is this business yours or does it belong to someone else? The opportunity you are presented has to be compared with others that are available. The product you will be selling also has to be compared to what the competition sells. Find out if there are difficulties in finding customers and what other franchisees are doing to keep the business running successfully. Franchising can fail just like any other business does. If you have invested all your economies in it, the loss would not be supportable. You should be prepared to work for your success. Check the financial information carefully because your payments to the franchisor will have to be regular. If your business doesn’t go smoothly, you will lose a lot of money. Don't panic if you don't have the skills required by the product. What matters is that you have been promised training. You have to permanently keep in mind that you are running a business, and that the actual products are less important than the concept itself. If your franchisor is serious, you should get all the help and support you need to get the business correctly started. |
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The Best Franchise Opportunities More and more people have seen their jobs cut as a result of the recession. Being made redundant may however be the opportunity of your lifetime, to take everything on your own and to start a profitable business. Many people are just afraid to take on a home based opportunity, while others prefer to buy a business using the redundancy money they get when they lose their jobs. Investing redundancy money in a business Going into business on your own is a tough decision and implies many risks. However franchising is a safer route in starting your own business. When you buy an ethical franchise you adopt a successful business formula and you will not be alone when going through this. As a franchisee you have access to advice, direction and help from people running the same business as you are. As a consequence franchising is a successful method for you to start your own business and this is why even during these hard economic times, franchisees are still making profit. All you have to do when considering franchise opportunities is to make sure it is an ethical franchise and that it has the accreditation of the British Franchise Association (BFA). Are franchises safer than big businesses? Although these are difficult years for the economy, there are some very successful franchises. Franchises statistically look better, because of they have an established brand name, a tried and tested formula, as well as back up and support from the franchisor, and therefore they have higher success rates. It is necessary that you make a thorough research of the franchise you're looking for, and pay attention to what is their position in the current markets. To find the best franchise for you, you have to analyze your own skills and experiences. It is imperative that your skills and experience fit the skills and type of experience necessary to run the franchise you are choosing. Franchising can allow you to work in a place where you have no previous experience. Buying a franchise is a significantly easier way to start your own business, than starting from scratch. You also have the advantage that you can see your potential business functioning even before you invest a penny. You also start your business using know-how and expertise accumulated over years of running a similar business. You even don't have to worry about developing the system or coming up with the original business concept. Do banks support franchising? Banks seem to really like franchising and estimate that it can be safer to lend to franchisees of ethical franchise systems. However, the track record of the franchisor is of maximum importance. When it comes to an established franchise, major banks will lend up to 70% of the start up costs. The franchisee is expected to contribute at least 30% of the cost of the franchise. So, you can borrow up to 70% when using a good ethical franchise system, while the same banks lend only 50% on a new stand alone business. |
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Things to look out for with a franchise |
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Things to lookout for with a Franchise When looking at a Franchise Business opportunity for the first time to see if it can be successfu or a drain on your resources. You will need to identify key points that will be good or bad indicators. A good franchise business opportunity will be geared to helping the franchisee build a solid business, providing them with tried and tested systems and suitable training. A bad franchise will not have the previous systems in place and will abuse the franchisee to their own enrichment. Most franchise opportunities allow the individual to start and grow a proven business, with on going support and training. If it is a large Franchise it will have a network of peers who are readily available to share ideas, gauge progress, and provide additional support. Franchisees benefit from their franchisor's national and regional advertising efforts, as well as from its purchasing power. Franchisors place constraints on what can be sold, serviced, and charged, and can place additional pressures in terms of closing the business, breaching the contract, or making other independent decisions. The business practices of a franchisor determine the extent to which these limitations are felt. Use the following criteria to ensure that your experience is positive. Buying a franchise can cost up to 40 per cent more than starting an independent venture. The added cost buys you proven business methods, an established brand, training, support and more. However, if the franchise opportunity you are investigating costs 40 per cent more than similar franchise concepts, investigate further. Serious price discrepancies should be explained by markedly better offerings, training, and support. If the premium isn't justified, the high entry fee may just be the beginning. A good franchisor recognises that its long-term success depends on the success of its franchisees. It wants franchisees to make money, and its fees and levies don't prevent them from doing so. The franchise opportunity should provide a good return on investment, and reward hard work with healthy profits. Ongoing support is an important benefit of franchise ownership. When it is absent or unreliable, the limitations can chafe. A good franchisor will have franchise support staff that are consistently reachable during regular working hours. The franchisor controls the brand under which you will operate, but who controls the franchisor? Be extremely wary of a one-person show. The franchisor should have a management team that consists of no less than a managing director, a marketing expert, a sales expert, a finance expert, a franchise support expert, and ideally, a multimedia/web expert and a research & development expert. The brand may be out of your control, but you are the winner when it is under expert stewardship. Most franchisors levy a marketing fee, which is sometimes called a marketing fund 'contribution.' A good franchisor uses the money to actively and effectively promote the brand. Examine the quality of the franchisor's website and enquire about its current promotional activities. If it is not marketing itself in the face of mounting competition, you have the right to ask why not. The franchise agreement both defines and enshrines the relationship between franchisor and franchisee. The contract should reasonably balance the interests of both parties. If it doesn't, don't sign it. These are just a few points that need to be considered before entering the world of franchise business. |
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