A properly run and proven franchise will almost certainly be a less
risky, more straightforward and structured way of going into business
than setting up independently. This is because:
- The business concept and existence of a market have been proven.
- The ways to approach that market and operate the business
profitably have already been worked out and tested.
- The know-how is passed on to the franchisee through initial and
ongoing training, advice, guidance
and support. Specialised knowledge in the proposed business activity
is therefore not a pre-requisite for the prospective franchisee.
- The Franchisor should provide ongoing market intelligence, being
in a position to monitor and analyse trends, opportunities and
threats to the business. The Franchisor is therefore better placed
than the individual operator to determine the overall strategic
direction of the business.
The risks of business failure are thus substantially reduced. Other
business advantages can also be attained:
- Finance may be more readily available to franchisees than to those
setting up on their own because of the proven success of franchising
and track record of the Franchisor.
- The lead-time in making the franchise business successful may be
reduced as franchisees have immediate use of an established name and
the reputation already built up by the Franchisor.
- Franchisees are able to make use of the Franchisor's purchasing
power, and there may be benefits arising from the size of the
network operations.
- Regional and national advertising and promotion may be afforded
and undertaken.
- Franchisees may receive territorial protection.
- Franchisees are the owners of their own business although
restrictions are imposed by their franchise agreements.
Being part of a franchise network offers the further advantage of
being in contact with like-minded individuals who are 'friends' in the
same business. This may be of particular comfort if you have a need for
companionship in your endeavors, and can help alleviate a feeling of
being out on your own.
Of course, Franchisors also benefit by the
arrangements. They can generally expand their trade name and activities
more quickly through investment from franchisees than solely through
their own resources. They too will gain by the increased purchasing
power for their own activities, while passing on responsibility for cash
and stock security in each 'branch' to the local franchisee. Above all,
the Franchisor wins local commitment to the business and its customers
from the investing franchisee.
If the Franchisor's business and its franchise operations are not
correctly structured and ethically managed, the franchisee may not gain
the benefits of franchising. Other aspects to be considered are:
- A franchisee is subject to substantial control from the Franchisor.
- An initial fee is payable to the Franchisor, adding to the amount
of start-up capital required before launching a new business.
- Ongoing management services fees or royalties are payable to the
Franchisor, the business must be able to support these and continue
to be profitable for the franchisee.
- Restrictions may be placed on the franchisee's ability to sell the
franchise, or to pass it to a relative. It is usual for the Franchisor
to insist on assessing the proposed buyer's suitability
and apply its normal selection criteria before approving a transfer
of ownership. Further, the Franchisor may require a substantial
payment should the franchise ownership be transferred. Franchises
cannot normally be assigned.
- The franchisee's business may be adversely affected by the actions
of the other franchisees and operations will be directly affected by
the actions, or insolvency, of the Franchisor.
Of course, the Franchisor too faces uncertainties, particularly in divulging
its business know-how and entrusting its business name and reputation to
others.
Whether you can build a successful business, even from a franchise
opportunity, is going to depend on the quality of all the assembled and
developed component elements, combined in the right proportions as
ingredients for the venture as a whole. When taking up a franchise, you
are not buying a business, rather, you are assembling the ingredients by
which you can build a business.
These ingredients for success may be summarised as follows and you
can then assess each one in more detail.
- You
There are essentially four questions for you to ask yourself at the
outset: Where am I now? Where do I want to be? How do I plan to get
there? Will it be worth-while?
'Getting there' relies heavily on you.
Whether it is all worth-while depends on what harmony you seek
between money, your relationships and your personal enjoyment.
Assessing your strengths and limitations, before you start to
evaluate possible franchises will help you determine the right
course of action.
- Support
You should be willing to seek out and
heed good knowledgeable advice and support from any source. The Franchisor
should be willing to assist you in a number of ways and
this should be a real strength. Once you are operating within a
franchise network, the franchisees established before you can often
become invaluable sources of advice and guidance.
- Market awareness/market intelligence
A good business idea and a good trade name are two of the obvious
essential ingredients for business success, but the fact remains
that without your own customers you do not have a business at all.
Your market (collection of customers) should be clearly identifiable
and quantified.
You should know what sort of customers you
are looking for, where they are and how to find them. You need to
know how their needs are currently being satisfied, or whether there
is a genuine gap in the market locally which you can exploit. If
there appears to be an opportunity, research further, is there in
fact a market in the gap?
- Viable product/service
An essential ingredient for business success is the uniqueness of
your offer to the market. The product/service must offer a unique
selling proposition, i.e. a valid reason for customers to buy
consistently from you rather than from other companies competing for
their business in the same market.
Lastly, the product/service ought to be
clearly safe and ethical, with no harmful effects on the
environment.
- Route to the market
Having discovered a viable product/service to offer, commercial
success lies in operating along successful lines to gain turnover, a
healthy cash flow and profit.
Territorial considerations may well need to
be taken into account. Is it possible for other franchisees, or the Franchisor, to impinge upon your scope for activity? Where might you
impinge on theirs? What are the marketing benefits to you for being
in the network?
- Trading name
Along with proven products/services, proven markets, and a proven
route to the market, the strength in the market of the Franchisor's trading name should enable you to start trading immediately and
sustain a steady flow of potential customers - a marked advantage to
starting up independently. an ingredient for your success is thus
the established and reputable trading name, or recognised pedigree
of the parent company.
- Good Franchisor
Does the Franchisor offer a properly structured
and ethically run opportunity? Can you have faith in the Franchisor's
integrity, reliability and professionalism? What
are the longer term aims of the company - can you reasonably expect
to be dealing with essentially the same management team throughout
the course of your franchise?
You will want to know the Franchisor's track record in providing initial and on-going training to its
franchisees, and how it achieves this. What initial and on-going
training can you expect, and who pays for the costs involved?
Will the Franchisor help you to draw up
your business plan? You should take responsibility for conducting
your own local market research and constructing your own business
plan, but realistic sales forecasts and some market research data
should be forthcoming from the Franchisor. Proven results gained
elsewhere and clearly showing the criteria which lie behind the
figures, together with any assumptions which have been made, should
be available to you.
Apart from the overall framework of law within which franchising
operates, good franchise companies have their own way of doing business
and a unique agreement constructed specifically to suit not only its own
needs, but also the needs of the franchisee.
Any prospective franchisee is therefore
strongly urged to obtain independent legal advice from a solicitor
experienced in franchising law, before signing an agreement and
committing funds. Good franchisees use only solicitors who are affiliated
to the British Franchise Association, as this ensures that their
franchise agreements are ethical and take into consideration the needs
of both the Franchisor and the franchisee. Our solicitor is an
accredited British Franchise Association solicitor.
The franchise agreement records accurately the
full nature, extent and limitations of the deal that the Franchisor offers the franchisee, together with details of what is expected from
the franchisee in return. It is essential that both parties commit
themselves to a binding agreement. The franchise agreement sets out the
rights and obligations of each party and contains provisions for certain
eventualities, as well as procedures for dealing with unforeseen
circumstances.
The franchise agreement is usually not negotiable,
since the Franchisor cannot claim to operate a coherent network if many
variations of the agreement exist. Franchisees should have no cause to
believe that they have in any way been disadvantaged by the Franchisor if they compare their own franchise agreement with those of other
franchisees in the network.
Some clauses in a good franchise agreement
sometimes appear onerous at first sight, but these are designed to
protect the franchisee's business interests, just as they are the Franchisor's. All operations in the network are subject to the same
quality standards, scrutiny and guidance from the Franchisor in order to
protect consistency of delivery to the customer and the reputation on which
the success of the business is founded.
The company's founders approve and
support the
British Franchise Association (BFA) and the International Franchise Association (IFA).
They fully
endorse and operate the BFA's and IFA's code of ethics.
The
BFA and IFA have many Franchisor members. As members of
a
franchise association the Company has to
provide a 'level of comfort' to potential franchisees
that show they operate an ethical, viable and trustworthy business.
The BFA and IFA by virtue of their membership of the European
Franchise Federation is required to adhere to the European Code of
Ethics. Franchisors wishing to join the BFA and IFA have to prove:
- They have operated a pilot business concept with success for at
least two years before starting its network.
- Shall exercise fairness in their dealings with franchisees. The
Franchisor shall give written notice to a franchisee if there is a
breach of the franchise agreement, and grant reasonable time to remedy
the default.
- Any advertising for franchisees must be free of ambiguity and misleading
statements.
- Any recruitment, advertising and publicity material, containing
direct or indirect references to future possible results, figures or
earnings to be expected by franchisees, should be objective and
capable of verification.
- Before prospective franchisees enter into a franchise agreement
they must be provided with full and accurate disclosure of all
information material to the franchise.
- The franchise agreement shall set forth without ambiguity, the
respective obligations and responsibilities of the parties and all
other material terms of the relationship.
Your relationship with the Franchisor is likely to last a long time,
therefore it is imperative that you satisfy yourself fully of its credentials.
You should take every opportunity to meet with the Franchisor and its
principals at their main office to look at and discuss the following:
- The background and established track record of the company.
- The market in which the business concept operates, both nationally
and within the area of your choice.
- The product and service itself.
- The real value of the trading name in the market.
- The financial, organisational, security and safety controls
needed.
- Is the company a member of a franchise association.
- Where are the company going to next.
- What costs are involved, and is funding available.
- Will the company help you draw up a business plan.
- What territory will you be given.
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