Franchising - Risk or a Business Certainty?

Franchising is becoming increasingly popular in Britain with an annual turnover of over £9 billion and nearly 700 franchised brands. The business community now takes franchising very seriously and it is accepted across a range of sectors. The advantages of owning your own business are obvious but so too are the risks. The franchisee is taking less of a risk than starting his or her own business. Less than one in ten franchises fail. This is because they are operating under an established and proven business model and supplying or producing a tested brand name.

Franchising is essentially the permission given by one person, the franchisor, to another person, the franchisee, to use the franchisor’s name, trade marks and business system in return for an initial payment and further regular payments.

The advantages of franchising

These include:

• someone else has already had the bright idea and tested it too
• there will often be a familiar brand name which should have existing customer loyalty
• there may be a national advertising campaign
• some franchisors offer training in selling and other business skills
• some franchisors may be able to help secure funding for your investment as well as discounted bulk-buy supplies.

Some disadvantages

Of course there are potential disadvantages. It is not always easy to evaluate the quality of a franchise especially if it is relatively new. You should make extensive enquiries to ensure a franchise is strong and not take on one that doesn’t have a proven pilot operation.

Who is in control?

Each business outlet is owned and managed by the franchisee. However, the franchisor retains control over the way in which products and services are marketed and sold, and controls the quality and standards of the business.

The costs

The franchisor receives a fee from the franchisee together with on-going management service fees. These will be based on a percentage of annual turnover or mark-ups on supplies. In return, the franchisor has an obligation to support the franchise network with training, product development, advertising, promotional activities and a specialist range of management services.

Choosing a franchise

Consider the following:

• your own strengths and weaknesses - make sure they are compatible with the franchise
• thoroughly investigate the business you are planning to buy
• research the local competition and make sure there is room for your business
• give legal contracts careful consideration
• last but not least, talk to us about the financial projections for the business - cash flow, working capital needs and profit projections will form the core of your business plan.

Further information

If this is something you want to think about further contact the British Franchise Association at Thames View, Newtown Road, Henley-on-Thames, Oxon RG9 1HG. Telephone 01491 578050. Alternatively visit their website at www.british-franchise.org