Understanding franchising

The franchising industry can sometimes be seen as one of mystery to many. It is a term misused on a regular basis and one that many misunderstand. So, what is really meant by franchising and what does it mean to those business owners who choose to use it as a way of building their business?

What defines a business as a franchise?

Business format franchising can be explained as the granting of a license by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade under the trade mark/trade name of the franchisor and to make use of an entire package, comprising all the elements necessary to establish a previously untrained person in the business and to run it with continual assistance on a predetermined basis.

Time and again, franchising has greatly out-performed other start-up businesses. Its formula of a locally owned and run enterprise, driven by a small business owner, with branding, economies of scale and support from the wider network, gives the consumer the best of both worlds and the business a far better chance of success.

The following key rules must apply to the business model for it to be considered a “Business Format Franchise”:

  • The business must involve a trademark
  • The business must have a defined and proven method of trading (proven system)
  • The franchisor and franchisee must use a license (Franchise Agreement) to use the trademark, which must be adopted and paid for by all franchisees
  • The franchisee must be able to sell the business on to a third party with the benefit of the goodwill derived from developing the business over time


What isn’t a franchise?

A number of businesses will run expansion models which may be very close to franchising but do not meet the specific criteria to be considered a “Business Format Franchise”. These are most likely to be some form of licence agreement or partnership. 

Advantages of franchising

  • You don't have to come up with a new idea - someone else has had it and tested it too! The business format is proven
  • About 90% of all franchisees reported profitability over the last 12 months
  • Good franchisors will offer comprehensive training programmes in sales and indeed all business skills
  • You have the opportunity to build your capital as well as your earnings
  • It is your business and you are the owner manager, providing you follow the system, you decide what goes
  • The major banks are very supportive of good franchising


Disadvantages

  • Running any business is hard work, demanding the highest level of personal and family commitment
  • You make a financial investment, however, no investment is guaranteed, especially when it depends on the efforts of both you and your franchisor as well as the vagaries of the market place
  • You buy into a proven business system for its benefits but you also take on the responsibility for following it – not doing so may result in you losing the business

 

 
 
  •  
    Mac Tools - Franchisee case study

    Adam Osmond has become the youngest Mac Tools franchise holder in the country. The 26-year-old has taken on the Mac Tools franchise for the Cambridge and the Royston area and has spent the last few months learning all about the business.

    Read the full case study
 
 
The bfa website is sponsored by

HSBCNatWestLloyds BankThe Royal Bank of ScotlandBank of Scotland

 

You have 0 franchise information requests ready to send.

Personalise and submit requests