What is a Franchise? - The owner of a brand, trademark, trade name or intellectual property, contracts with a third party on a non-exclusive basis. The franchisee earns the income by exploiting these rights provided, in relation to the products and services. They then pay royalties on sales, in exchange for these rights. An entire business system is provided by the franchisor, including the training and support, advertising and marketing, supplier of products and services, site selection and even the interior retail layouts. A restaurant pizza franchise is a popular example of a franchise. Others include shops, hairdressers, and estate agents. It is normal that the franchisee will be under the control of the franchisor, with regards to business strategy and decision making. If you are thinking of signing a franchise agreement, you will have to undertake business activities according to the methods and standards documented by the franchisor. The documented business processes must be provide a well establish route map to success. There are hundreds of different types of franchises and tens of thousands of franchise businesses already established in the United Kingdom. Some of the world's largest brand names including McDonald's and Kwik-Fit, provide franchise opportunities to would-be business entrepreneurs. There are also many franchise opportunities that have been created by much smaller local organisations, who simply wish to expand their sales into nearby or wider geographical regions.
Why Start a Small Business Franchise? - so why do tens of thousands of people choose to start a small business franchise every year? It is because the risk of business failure is dramatically reduced by following a proven system. 90% of new franchisee's stay in profit, whereas 30% of ordinary (non franchise) business start-ups fail within the first five years. Successful small business franchise models have been fine-tuned, year after year, the failings trimmed away, to leave a relatively low-risk method of start-up up a new enterprise. Most ordinary small businesses fail because their general business knowledge and expertise is poor, even though there specific product skills may be good. The main objective in adopting a franchise model is to reduce the business risk and increase the chances of success by joining a model which has been proven. There is no guarantee that touching a franchise business is an instant route to success. It will still take patience, tenacity and business know-how - just like any other small business start-up.
How to Find a Franchise Opportunity - the internet is flooded with thousands of opportunities and information overload can quickly set in. A number of useful sources of franchise information are as follows:-
- Reputable Members - to contact a representative form a reputable franchise, a good starting point is to contact one of the British Franchise Association's accredited members. The BFA accredits companies for membership on the basis of an established standard structure. These standards are based on the company's financial position, its day-to-day business activity, the disclosures made to prospective franchisees and the terms of the franchise agreement. These standards are based on the European Code of Ethics for franchising - agreed by the member associations of the European Franchise Federation in 1990 and recognised by the European Commission.
- Bank Managers - business bank managers provide a useful source of franchise information, to evaluate the effectiveness of networks that have been established for a number of years. They will have experience of lending money to business people seeking to set up businesses in their local area. Most will be able to assist in evaluation of business plans and pick holes in your market research. Clearly, banks will be seeking to provide the initial small business loan, which are most franchisees will need to join. There are also many public exhibitions in which you can go and meet representatives from reputable franchisors to ask all the qualification questions necessary.
- Public Exhibitions - there are also a number of exhibitions held a regular basis, where you can meet the companies offering small business franchise opportunities. Its a chance to meet face to face your potential new business partner. It is a mutual personal selling exercise as you will have to convince them you are a worthy candidate for further interview, and they will have to convince you that the business opportunity is highly relevant to your skills and experience. So go prepared with a list of questions regarding the commercial and legal aspects of the agreement. Ensure you bring details of your relevant business experience and contact details, if you both decide to take it any further.
- Double Check the Small Print -check the sale s literature documentation to understand the business background, career history (for smaller operators), commission levels, business assumptions, company financial background, number of franchises, credit ratings etc. Like any business start-up, it is imperative you independently produce your own business plan to compare the financial small print, so you don't get over excited by the glossy (sometimes over enthusiastic) headline promises made i the sales literature.
- Reference Sites - generally, franchises that have been established that number of years with a well known brand name and have a proven track record. They will be able to point to existing franchisees as reference sites to demonstrate that their system works and is profitable. Beware, that there is no guarantee all franchise will work - basic business principles need to be applied. For instance, the franchisee may have local market knowledge but must also have broad business knowledge to adapt the franchise model to that particular market.
- Business Ideas Protected? - You will need to qualify that any marketing and promotional sales materials linked to a specific product innovation or celebrity are properly protected. Qualify whether any trademarks, patents and design registrations actually exist, to back up the franchisors claims to unique selling points.
- Understanding The Sales Territory - most franchises revolve around a specific geographical area or territory. Occasionally, members of the same franchise deliberately or accidentally sell in other members nearby territories. This can create business conflict, anger and frustration. However, most franchises are tightly controlled to avoid such disputes. With this issue in mind, it is critical to understand the potential market opportunity within the sales territory and how it has been initially defined and qualified by the franchisor. Ideally, the franchisor will justify the mapping out of a geographic market with comprehensive market research. This should analysis of competitors, traffic through flows, local customer demand etc. This type of data provides re-assurance that the franchisor has thought through (and not accidentally restricted) the size of the market opportunity.
- Business Leaders - it is important to understand as much about the business history of the person and their franchise model, to establish the level of potential risk attached to the opportunity. For instance, how many successful franchises are there? How long has it been established? Of the ones that failed why did they fail?
- Terms of the Franchise Agreement - all franchisors will provide copies of the draft franchise agreement under which the basis of the partnership is legally binding. This will include the roles and responsibilities of both parties and termination clauses. Check for any financial penalties for early release, due to a possible change of heart or business failure.
- Rogue Franchisors - most franchises come with an initial upfront fee to demonstrate personal commitment and seriousness. However, some initial fees may be extremely high and there is a risk that the franchisor is more interested in obtaining upfront fees than actually working with a long-term partnership to help you become successful.
- Training and Support - the best franchise was what you succeed a lot of money so that they will make money to together as a partnership. They will have good quality training and technical advice in areas such as administration, accounting, tax, UK employment law and marketing and sales. They are likely to have someone available on the telephone that can provide instant advice where the things become unclear or difficult to manage.
- Marketing the Brand - Faced with multiple choices consumers generally tend to adopt brand names they trust recognise and have tried before. By accessing a national or international brand, a small business person can confidently complete at a local level with the other top brands. In addition, small would-be entrepreneurs can benefit hugely from the economies of scale offered from national brand marketing and advertising. Larger franchises that provide national television, radio advertising and newspaper adverts, all help to promote the brand name at a local level.
- Market Research - it is vital that you do your own in independent market research of a particular target market to justify to yourself why franchise will work in your particular local area. You will need to understand their needs and wants of consumers and the motivation for buying the potential franchise product or service. The pros and advantages
- Market Knowledge -most franchises will have a good knowledge of the local market, the most effective return on investment for advertising spending, the tactics and effectiveness of competition for their products and small business services. This knowledge will save time and money in the marketing research process. Economies of scale-larger franchise ores and have access to better deals with large suppliers by bulk buying raw materials and goods and services. They also have the ability to recruit high-quality staff by offering better employment benefits and career opportunities. This level of technical expertise in the central support function will benefit your ongoing training needs as well as provide a lower operating expense model.
- Product Innovation -it is likely that research and development spending into new product elements and better versions of current parks, can best be funded centrally by the franchise or who will have more available budget that the local franchisee.
- Lack of Product Innovation - you will only be allowed to sell approved products and services. Yet, you may realise over time that product expansion may be critical to keep your business competitive and adapt to meet changing local market needs. Therefore, franchising may not be ideal for individuals without much creative flair or ability to think laterally. If they shy away from huge risks or don't mind not having complete control.
- Lack of Strategic Decision Making - you will have two give away some decision making powers and freedoms. You may even be forced to implement decisions from above you feel are not correct, due to the obligations of your franchise agreement.
- High Start-up Costs - franchises that sound too good to be true probably are. High start-up joining fees indicate the business partner may be more interested in the registration joining fee than building a long term partnership with you. Also, the cost of a business premises such as a retail outlet or office is likely to be your largest early commitment. If the franchise fails, you will be committed to this cost and no risk to the franchise all.
Further Reading - The Franchise Shop is now in it's 4th year of operation as a leading UK Web 2.0 franchise portal. With over 250 franchises listed in our directory, 14,000+ pages of content and a panel of franchise experts available for advice on our forum, it is fast turning into the UK's largest franchise information and resources portal.