Franchising is a much-misused term, and one that many misunderstand. It encompasses a vast array of different types of businesses, and there are even different meanings of the term itself (between Franchising and ‘Business Format Franchising’, which we will come onto later). So, what is really meant by franchising and what does it mean to you as a business owner. First off, let us look at what defines a business as a franchise?
Business Format Franchising: The granting of a license by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade under the trademark/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.
The fundamental elements of a business format franchise are piloting to prove the idea works and can be replicated; initial training to franchisees in the operation of the business; the ownership of the business by the franchisee and the capital investment they will have to make.
The provision of ongoing support is also a vital element. Whilst the franchisee is the owner of the business, it is important to bear in mind that it is the franchisor’s system and brand that the franchisee is operating under. An ongoing dialogue between franchisor and franchisee is crucial therefore in contributing to the success of each individual franchise unit and consequently, the franchise network.
So how does this work? The franchisee will pay an initial fee for the franchise which includes the training and equipment to set up and run the franchise business. It is important that a franchisee follows the business model closely according to the franchisor’s instructions as this will help increase their chances of success and supports consistency across a network. A franchisee agreement will usually run for about 5 years (this can be longer if the investment is larger) and if a franchisee’s performance is good, they will have the opportunity to renew their agreement for another term.
One of the benefits of franchising for a franchisee is that they will have the opportunity to sell their business should they decide to, and in partnership with the franchisor can agree to sell, therefore benefitting from a return on their investment.
In Business For Yourself – Not By Yourself!
Although success is not always guaranteed, buying a business that has already made mistakes, been through a trial and error process and has a model that is well established and proven as a viable business certainly increases your chances of making it a success, too. You should also get a network of people to help guide you along the way and someone to turn to when you need help, as well as training and help acquiring new skills.
Low Risk On Investment
Franchising is a terrific option for those who have a desire to be their own boss but also have the security of managing a known and established brand. Within franchising, there are hundreds of tried and tested business models from across all industries, with a failure rate of less than five percent over five years, compared with non-franchised small businesses, where failure rates are as high as 91 percent in their first year of trading.
Business Opportunities For Everyone
From accounting to pet care, home-based roles to being on the road in a van every day, there are business models for every aspiring business owner, with franchisors able to suit the needs and commitments of every potential franchisee.
A Community Benefitting From Local Investment
The local community can be rest assured that the business will build on good foundations and their local investor will be supported by the ongoing research and development by the franchise support team. This support means that franchising has the ability to develop at pace and serve customer expectations well providing fabulous additions to local economies.
There is a vast array of options available to anyone exploring this avenue for the first time. When most people think of the term ‘Franchising’, they probably think of their local McDonalds, and yes, the Restaurant Franchise Sector is massive, but it is only the tip of the iceberg when it comes to available options. There are Retail Franchises on the high street, for clothing, fashion, sports and medicine, there’s Premises-Based Franchising, dealing in warehousing, shipping, and product-assembly, and more recently there has been an explosion in Services and Home-Based Franchises. These can include everything from common, everyday services such as house maintenance, laundry, and landscaping to niche services such as tutoring and consulting. Home-Based Franchises can be more flexible around busy lives and can cover everything from administrative help to the creative arts.
Aside from the variety of sectors, there is also a whole host of options in the size and style of the business that you might want to set up. The British Franchise Association host their annual Conference and Awards, which includes categories for every shape and size of business, from individuals running real lifestyle micro-businesses through to multi-million-pound empires, with thousands of employees. Some of these franchisee empires can even challenge their parent organisations in terms of size and revenue and have developed their own sub-brands within the franchisor’s parent brand.
It is important to recognise that investing in a franchise should not be seen as an opportunity to ‘buy a job’. To all intents and purposes, a franchisee will be starting their own business, they will just be doing it with the relative safety net of working within an established brand and business structure, and all the support that comes along with that.
As with any new business venture, the importance of good research and due diligence cannot be overstated. It is critical that anyone considering this as an option spends the necessary time and energy to look at considerations that will directly affect their success. These types of considerations will include start-up costs and initial investment (fees, supplies, operations, staff, sales, and marketing), the franchise agreement, the reputation of the franchisor, your local market and competitors, the list goes on and on. a good franchisor will guide and advise through much of this, and some may include some, or all these costs, in the initial fee, but the ultimate responsibility will certainly be on you as the ‘business owner’.
This video explains in depth how franchising works and provides some wonderful examples of franchise brands that are growing well using the franchising model and features some franchisees that are excelling too!
So how can you be sure that you are talking to a ‘Good’ Franchisor? Well, most experts will begin any response to that question by talking about Professional Accreditation. In the UK, the British Franchise Association is the body that upholds standards and ensures that its members adhere to a Professional Code of Conduct. As ‘The Trusted Partner’ in franchising, everything we do revolves around promoting Ethical Franchising in the UK, and ensuring standards are maintained at the highest level. Membership of the bfa denotes that the business has passed through exhaustive accreditation processes and is operating professionally and ethically.
When considering this route, it is also key to consider your own suitability for this as a potential path for you. Good franchisees come in many shapes and forms, but, interestingly, many success stories in this arena come from an armed forces background. Experts believe that the reason for this is that these are people used to following processes and operating within a highly regulated system. If you have dreams of wild creativity, for designing your own brand and for coming up with unique, pioneering, or unconventional ways of doing business, then it is likely that franchising is not the path for you. It is worth remembering that the most successful franchisees are ‘implementers’, not ‘innovators’.
So, there is a lot of work involved, but why would you want to become a franchisee? Well, buying into a franchise gives you much of the independence of running your own business, whilst providing you with many of the benefits of joining an already established brand. For a start, the risk of failure is dramatically reduced when you come on board with a proven business concept and operating model.
When joining a well-run franchised business, you can also expect all sorts of other benefits such as training and ongoing support, shared marketing costs with the franchisor and other franchisees, and support in difficult times from the franchisor. On top of all that a good franchisor will be carrying out constant product and service innovation, which can be difficult to find the time for when you are busy with day-to-day operations. add into the mix the financial benefits of franchising, such as increased buying power through economies of scale, being part of a franchise group, easier-to-obtain finance from banks and other lenders, and the increased chance of a successful sale of the franchise upon exit, and it is easy to see why franchising is such an attractive prospect to many budding entrepreneurs.
Time and again, franchise model businesses out-perform other start-up businesses. The 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.
During the economic downturn back in 2008 when the economy was imploding, many franchise businesses found that they had an increase in the number of enquiries to buy into their brands. The reason was that as a proven business model, and one that weathers economic difficulty well, increased numbers of people were turning to franchising as an attractive new career. This has also proved to be true during recent times with the advent of the coronavirus, and all the shifts in circumstances that has brought.
So why doesn’t everyone franchise their business? Well despite its inherent successes and strength, there are some key considerations to consider:
The business not only needs to be proven to work, but it also needs to be transferable, to allow potential franchisees to run the franchise as a business elsewhere. It also needs to be a business that you can teach people to replicate, in accordance with your system.
Although expansion through franchising can be cheaper than organic business growth, it still is not cheap. There are a lot of up-front costs such as having proper franchise agreements written up, producing detailed operations manuals, adapting the structure of the business, marketing, recruitment, and the list goes on. To franchise a business properly takes a lot of investment and effort, both of money and time.
The bfa has a list of accredited professional affiliates, including banks, accountants, solicitors, media partners, and consultants, that can help you set up your business for franchising. If you are just starting in franchising, you will need to enlist the help of these professionals externally, and this means additional costs.
A franchise network needs continuous investment and support. You will need to develop the brand, provide training, provide technical and business support, deal with disputes, and account manage the franchisees’ own commitment and enthusiasm. all of this takes time and money, and you need to be committed and dedicated to this task. Without this support you set up your network to fail.
The British Franchise Association (bfa) was established in 1977 and is the only voluntary self-accrediting body for the UK Franchise Sector. Its aim is to promote ethical franchising practice in the UK and help the industry develop credibility, influence and favourable circumstance for growth. It does this with a self-regulatory, standards-based approach to membership of the association. In addition, the bfa works to increase the awareness of ethical franchising by communicating with government, academia, the media and the uk public on what constitutes franchising best practice.
Membership of the bfa is divided into 3 levels of Franchisor Membership and Affiliate Membership for Professional Advisors. The franchisor members must meet the standards set by the association to establish that their franchise represents a fair, ethical and disclosed opportunity. The standards are adopted from The European Franchise Federation (EFF) Code of Ethics and set out in The bfa Ethics of Franchising.
The motivations for investing in a franchise are many and varied. From the desire to escape the 9 to 5 routine, be your own boss, improve career prospects and lifestyle, as well as spend more time with family and have a more flexible routine, franchising is seen as a very realistic option for many people who want to start their own business.
But don’t just take it from us, see what our members have to say!