Anyone researching into entrepreneurship and searching for inspiration to start their own business will undoubtedly come across franchising opportunities. Franchising, not a new concept but a very popular one, is an alternative route into business management and operations that is often misunderstood and rarely appreciated for the value it provides. But what is a franchise, how does it work and what be gained from running one? Let us guide you through the basics…
So… what is a franchise?
A franchise is where an existing brand (the franchisor) licenses another business (the franchise, or franchisee) to sell its products, goods or services under its brand name and using its brand property and marketing. The most common example of this in the UK is fast food restaurants (McDonalds, Burger King, KFC and Subway are all franchised businesses) but the security of operating under an already successful brand name means that franchises can now be found across all industries and sectors. A franchise usually pays a one-off fee with continued royalties throughout its operations in exchange for the ongoing support of the franchisor.
The tried and tested success of the franchisor’s brand along with its stipulated processes and policies helps make the chances of business survival the highest possible, providing that the franchise owner is willing to work hard to ensure their branch is a success.
What are the benefits of franchising?
Franchising is beneficial in many ways to both the franchisor and franchisee.
For the franchisor, the ongoing regular income a franchise provides along with the increased brand presence of a new operator is beneficial. For the franchisee, operating under a proven brand name with processes that have already been a success for the initial brand helps foster trust amongst a customer base that is unrivalled in any other business practice. This success is demonstrated in market statistics – over 90% of franchisees report profitability and less than 4% fail for commercial reasons. This, compared to independent businesses and start-ups (where approximately 50% close in their first three years) is hugely impressive.
What are the legal requirements of franchising?
Every franchise agreement differs, but this document forms the relationship between franchisor and franchisee. This document, which is usually legally binding, stipulates the contract between the two parties and lays out a range of requirements and stipulations that must be met in order for successful operation. These obligations are usually to be met by the franchisee for the franchisor and are primarily operational. The franchise agreement should be fully understood and the franchisee certain that they can meet all requirements before it is signed and the initial franchise fee paid.
What are the different types of franchises?
Franchises come in all types, shapes and sizes, but there are three main types. These are:
- Manufacturing franchise – where a licence is provided to manufacture services and goods of the franchisor’s brand by a franchisee. This is most common in the food and drink industry;
- Product distributor franchise – where a license is provided to sell branded products and services, often with an additional licence to use the logo for ongoing business support. This is most common with petrol stations;
- Business format franchise – where is a license is provided for a franchisee to operate using the brand name, full branding and business model of the franchisor. This is the most common type of franchise and all operations must adhere to a strict franchise agreement.
There are other types of franchise that are less common but are growing in popularity throughout the UK. These include job franchises, by those starting a small business, and distribution franchises, which are used for large products. Investment franchises and conversion franchises are both emerging franchise concepts in British business.
Are there any good examples of franchising success stories?
Customers rarely realise it, but they deal with franchises almost every day in all aspects of life. Some of the world’s biggest and most recognisable companies operate under franchising models and so anyone who has interacted with them has bought from a franchise.
McDonalds is the world’s largest restaurant chain by revenue – and its franchising model has allowed it to develop to serve over 69 million customers every day across 100 countries! Starbucks also operates franchises and has almost 33,000 stores across 83 countries; closely followed by Domino’s Pizza franchises, which operate across 20,000 stores in 83 countries. A great example of a non-food and drink franchise is Molly Maid, which has over 400 current branches and is listed on the Franchise 500 list despite being a brand unlike any other in the directory. Jewellers Swarovski and accountants TaxAssist are also both successful franchisors in the UK.
I want to be an entrepreneur, but where can I find a suitable franchise for me?
There are many specialist franchise resources available for those looking to launch their own businesses including Franchise Local and other directories online. However, the key to successful franchising is by no means looking up options and selecting one the entrepreneur likes the sound of. Instead, franchisees should only launch a franchised business in which they hold enough passion to truly drive forward with the brand.
Before a franchise agreement is signed, there should be a lengthy period of negotiation and collaboration communication between franchisor and franchisee as well as market research carried out by the latter. Market research should be properly invested into to ensure the feasibility of the business in the designated geographic area; there must be an understanding that a well established brand does guarantee success. This instead is reached only by being the right person in the right place at the right time – and working damn hard for it!
How do I know if running a franchise is for me?
Successful franchise entrepreneurs must have drive, determination and a real desire to succeed. Hours will be long and the mental and physical capacity may be tough, but those with passion, persistence and political agility will make it through. Find what you love… and franchise it!
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