A Guide to Franchising

HOW FRANCHISING WORKS Franchising is a 'business marriage' between an existing business (the franchisor) and the newcomer to the business ownership (the franchisee):

THE FRANCHISEE buys licensed rights to clone the whole business package from the franchisor in a specific territory for a specific period, backed by full training and support from the franchisor.

THE FRANCHISOR provides a ready-made, established and tested business format including name, corporate power, know-how, training and support services.

THE FRANCHISEE invests capital, time, effort and any relevant past experience to create his business, replicated from the franchisor's business formula / system.

THE FRANCHISOR gains a new outlet in a new territory with minimum capital investment in setting it up.

THE FRANCHISEE gets a safer, more structured, brand-led way of moving into independent business.

THE FRANCHISOR expands his network cost-effectively with your investment.

YOU WILL INVEST:

CAPITAL - ie., savings, rollover, redundancy pay, compensation, inheritance, loans to set up and operate the business in return for access to the franchisor's systems, know-how, training and ongoing support

TIME - ie., living and breathing the business to the exclusion of all else, certainly at first so that it builds on a stable foundation

EFFORT - ie., committing to learning, building and sustaining the business, often with unsociable hours and going the extra mile

FAMILY/SPOUSE - ie., they are often expected to assist in running the franchise

SECURITY - ie., giving up paid employment, unemployment benefit, company pensions and control over a possibly re-mortgaged home or savings in favour of borowing commitments, debt servicing and debt chasing

EXPERIENCE - ie., where relevant / applicable, eg., management, accounting, technical, administrative.

COMPETITIVENESS - ie., you may need to absorb the effects on your margins of tied supplies, mark-ups, royalties, marketing and other percent levies

FREEDOM - ie., unlike a self-start business, you will be limited by a contractual but constructive relationship with the franchisor, especially regarding work methodology, operating procedures, maintenance of quality standards, supervision, monitoring, foregoing the right to conduct a similar business of your own devising and being restricted in choice of buyers for your business when you want to sell it on to realise your investment or simply to move on to pursue something else

BASIC TYPES OF FRANCHISES

INVESTMENT FRANCHISE - where the franchisee puts up substantial funds to capitalise on a high-cost franchise system, and although retaining overall strategic management, invariably hires others to manage the franchise outlet. Examples are the big hotel and restaurant franchises.

MANAGEMENT FRANCHISE - where the franchisee controls several territories or a region or manages a team of operatives. Examples are van-based franchises run from regional HQs, depots or hubs.

EXECUTIVE FRANCHISE - where the franchisee runs a one-man white-collar business, involved in areas like financial services, personnel, consultancy or project management and where premises are not vital in that work tends to be taken to client premises. Examples would be VAT and cost control consultancy franchises.

RETAIL FRANCHISE - where the franchisee makes a significant investment in commercial property, costly equipment and staff to help operate a high-yield business system which can often be sold at a profit should the franchisee wish to retire and capitalise on the investment. Unlike the investment franchise, owner-operators are the norm here. Examples here are high street fashion and hi-fi chains.

SALES/DISTRIBUTION FRANCHISE - where the franchisee is on the road, selling and/or distributing products in the territory and where other driver-delivery personnel could be hired to cover areas as the customer base grows.

MOBILE SERVICING (JOB) FRANCHISE - where the franchisee with a lower level of financial investment buys the right to operate, typically, a man-and-van home-based service / installation / repair business in areas like cleaning, motor services or maintenance.

CROSSOVER EFFECT - Bear in mind that most franchisors now like to view their opportunities as more mature 'management franchises'. Even those that start as job-type franchises are generally accompanied by encouragement for franchisees to aspire to developing a management franchise, whereby they employ operatives and focus more on managing and growing the business.

FORGET FRANCHISING IF YOU'RE:

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  • Arrogant... Think you know best/unwilling to learn
  • Stubborn... Won't follow the franchisor's system
  • Unrealistic... Underestimate self-employment
  • Under-funded... Start business on a shoestring
  • Disorganised... Bad at man-management
  • Maverick... Unable to work as a team
  • Lazy... Content to be a passenger
  • Complacent... Content to reach a comfort level
  • Panicky... Unable to cope under pressure
  • Unconfident... Unable to control staff, hire/fire
  • Unsupported... By spouse, family, partner...
  • Unhealthy... Physically unable to cope
  • Defeatist... Unable to battle adversity
  • Greedy... Overcharge customers/fiddle royalty fees
  • Impressionable... Easily misled or misdirected
  • Self-deluding... Overestimating abilities
  • Immature... Inadequate life-experience
  • Introverted... Unable to communicate and mix
  • Short-sighted... Failing to take a long-term view
  • Over-optimistic... Expecting too much
  • Impatient... Unwilling to wait for payback
  • Extravagant... Spending early turnover on luxuries
  • Impetuous... Ignoring professional advice