What is Franchising?
“Joining a franchise is a big commitment and can be hugely rewarding, but the right steps have to be taken to get there,” from Brian Smart of British Franchise Association (BFA).
Franchising needs a lot of work and earning the trust of a franchisor is essential. What exactly is franchising? Franchising is the right to operate somebody’s business model. You need to pay the franchisor a franchise fee that goes to the supplies you need. Then you undergo meticulous training for a period of time where you will learn their business system, operations, inventory and marketing techniques. As you agree with the signage, layout and everything in between, then they will give you the right to operate the business for 10-20 years.
When you are ready for the challenge, then they provide the location and equipment. A field consultant will visit you often to check up on the business and provide you additional details about the brand. Every month you will pay the agreed fee and flat base rent from your sales. You earn money due to popularity and practicality of the location of the store or restaurant. How you manage the franchise and your people will determine the success of the business.
Using the business strategy and popularity of the brand name, you easily earn the revenue you desire. But technically, you are not the boss of your own business, you need to answer to a franchisor.
Franchise is derived from the Anglo-French word, franc, which means free. Franchising is typically creating chain stores and the success of the franchisor depends on the success of the franchises.
When franchising was born is said to be in the middle ages but it is recognised at initial part of 20th century. The first Business Format Franchise was first created by Singer Sewing Machine Company in United States, which build its maintenance and service system separately. General Motors also build their own chain stores in the 20th century.
Pepsi, 7-Up and Coca-cola are three of the soft drinks companies that use franchising as an expansion and distribution technique. It was in 1950s that companies adapted franchising to increase the return of investment and to disseminate products easily. These days, McDonald’s is one of the best franchise models.
British Franchise Association (BFA) was created in 1970 to layout the standards in the franchise industry and informs the public regarding the franchising. Franchising is all about creating a lasting and strong relationship between the franchisees and franchisors. As the business trend changes and progresses, new franchising opportunities will increase which is good news for business owners who aim to expand in various locations.
There are over 930 franchise systems in UK which is said to be an 11 percent increase since the start of the economic depression in 2008. One out of 4 UK-owned franchise system is exporting their business model overseas. UK franchises employ over 561,000 people which are 20 percent increase in the last five years. Franchises contribute £13.7 billion to the nation’s economy which equals to 1 percent of Gross Domestic Product. This also represents 20 percent increase in over 5 years. Since 2008, it is only in this year that about 88 percent of franchisors are surprisingly optimistic about their business for the next twelve years.
Types of Franchises
Starting your franchise also means you have to choose which industry you are interested in, your financial capabilities and the time you will be able to commit.
Unit model is the most famous type of franchising and franchisees are only required to pay 1% of the profit to the franchisor but still there is control over branding, distribution and product development.
There are five various franchise types to choose from:
- Management Franchise – This kind of franchise commonly functions from regional offices and this is where the management, coordination and development of providers for the product or service take place. It could either be service providers or executive franchises such as education and training. In other words, the franchise is in charge of the management and marketing while the staff is accountable to the products’ sales or condition of the service.
- Investment Franchise – This franchise needs an essential sum of financial investment and the franchisee acts as an adviser to the franchise. Experience in handling a large amount of people is very important. The franchisee will hand over the responsible of running the business to the managerial team.
- Business to Business Franchise – The franchise will develop a partnership with a business that requires their services or products. They don’t directly interact with the customers and they are in the production part of the enterprise such as communication, manufacture and printing.
- Retail Franchise – This is owner-operated from the retail channel. The brand will offer profit from the customer who directly purchase the products. It is common in various industries such as technology, food, fashion and leisure. In order to speed up the return of investment, choose the right location and provide exceptional customer service.
- Single-operated Franchise – The franchisee will single-handedly operate the business providing products or services for a specific industry. The franchisor provides the name, equipment and marketing materials in order to establish the brand in the specific location. Since it requires only a small amount of investment, this is perfect for home based or start-up business. Through the quality of products and recognition, profit is quick to achieve.
Pros and Cons of Franchising
As a franchisee, you have to identify the pros and cons of buying a franchise, if it’s right for you or not.
The very advantage of franchising is there are no risks for your investment. Since you are adapting an established business model, you have a grasp of better management which reduces making major mistakes. So your business profits fast and you can run it smoothly. Leasing a franchise allows you to use the same business strategy that have been proven and tested to generate great results.
Another advantage is the instant recognition. Customers always go with brands they already know that provide the best products and services. If the customer is new to the town and looking for a restaurant, then most likely he will eat in McDonald’s than in any local place. The brand already established a large and loyal customer base, so before you even start selling your product, customers are already anticipating. They know what they like about your business and what they expect. And success is evident as you are using proven business strategy and products.
However, some wannabe business owners hesitate buying a franchise because technically, you don’t own the business. You have to follow the procedures, guidelines and methods of the franchisor as settled in the franchisee agreement. There are also restrictions regarding the pricing, location and the services and products to offer which is a serious drawback. Aside from franchise fee, you also have to pay for advertising fee and ongoing royalties.
When one franchise performs poorly, it could affect the image of the brand which could result to failure. Also the duration of the agreement is at maximum of 20 years so if it closes, then you can do or say nothing.
The franchisee must balance the support and guidelines of the franchisor in order to manage the business efficiently.
Starting a Franchise
For franchisors, considering franchising for business expansion is recommended. As the business owner, you have to meet the important requirements in order to legally start franchising your brand.
ü A disclosure agreement is vital to have a wider perspective of your franchise operation. Before you develop your franchise in a particular location, you have to research about the franchise laws in order not to get in trouble with its government. A reliable attorney is necessary to complete the essential documents.
ü Financial statements are also included in the disclosure requirements. You need a professional accountant experienced in franchising industry to do these statements accurately.
ü Set up your business system. Developing your system determines the success of your company. An appealing system attracts new franchisees to your business. An effective marketing plan is also crucial to draw more customers to the new franchise. A lot of work should be done in order to polish your system. Hire consultants to ensure the quality of your system.
ü The right mindset is very important to become a successful franchisor. Franchisees are different from your employees so you should not treat them as your people. They are your partners in your growing business and you have to continue supporting them for continuous operation.
The satisfaction you will get in successfully setting up your franchises is invaluable but there are prices to pay. Make sure you are ready for what it will cost you and what will happen in the future.
For franchisees, this is a great opportunity to run a business and represent a well-respected brand name in the industry. But before you take another step, you have to consider some factors in buying a franchise, including selecting the most suitable franchise.
Choosing the Perfect Franchise
In choosing your franchise, you have to determine what are your skills, desires and passion. You also have to make sure you are joining a respectable and first-class franchise. You can select your most ideal franchise opportunity by browsing through industries at Franchisedirect.co.uk.
To start the plan, first you have to consider the work environment you desire. Are you comfortable working late at night? Can you handle a large group of people? Do you like directly dealing with the customers? Think what is suitable for your lifestyle. List down all your goals. Writing it all down makes you identify what you yearn for.
When you have determined the niche, check out the websites of franchises which could be good candidates as your business. The sites provide details about their franchising requirements if you aim to join them and sometimes, even the total investment. A franchising consultant could help you with your decision.
Lastly, contact the franchisees you are interested in. Bear in mind as you are looking for the best franchisors, they are also looking for the perfect franchisees. They will question you as much as you to them. As a franchisee, you have to agree on the franchisor’s conditions and guidelines in order to say you have found your perfect match.
Don’t forget your goals and stick with them in order to keep the high level of credibility and recognition of the brand. It is beneficial for you as a franchisee and to the franchisor.
How to Select the Right Location for a Franchise
Like any other business, selecting the perfect location is very essential to assure the new franchise generates the expected result. As a new franchisee, you don’t have enough experience looking for the best location but with sufficient support from the franchise company, you are definitely on good hands.
The franchisor has already established strong credibility and has created a loyal customer base, so you also have to do some research about the most money-making location. Studies reveal franchises will likely fail by 30 percent due to poor selection of the location. How to choose the perfect site to ensure the victory of the new unit?
ü Get to know your franchise better. The type of your business is essential in determining the perfect location. You have to determine who your customers are, where do they live or do you come to your customers or you come to them. Also identify the convenient time customers go to your place or if the location is highly visible to the customers.
ü Work with the franchisor. A franchisor has a set of particular guidelines to come up with the perfect location. Although it is all written in your disclosure document, it is still important to build a strong relationship with the franchisor. Experience is the franchisors’ very advantage and they already have target locations to develop new franchises. You can also do your own research and if you found the perfect one, then be ready to provide to the franchisor.
ü Connect with other franchisees. Talking to your co-franchisees will provide you a wider view of the business strategy of the company. It allows you to see the potential locations that are convenient for customers and profitable for your business. Since you know your location very well, then you are very familiar which area is perfect.
ü Assess your target location. If you think you have found the perfect one, then evaluate it immediately. It is important if you are on the perfect side of the road. If the customers have to cross some lanes in order to get in your site, parking space is also essential to consider. Check if there is popular restaurant around the area that consumes a large portion of the parking space during lunch or dinner.
Evaluate if there are competitors within the radius. Also if other franchises of diverse industries are gaining adequate profit, then probably your business will also succeed. If there is sufficient number of customers, then probably return of investment will soon come. Consider also the other franchises near you. They should complement your store. If you are developing a food service franchise, then you could be beside a grocery store or an office.
Then consider the price of the location. You can only say you have found the right one when you can only afford it. If the rent is way beyond your budget, then look at your next options.
ü Seal the deal. If you have done your research and evaluation, then most likely you have found your perfect site. If you did, then call a real estate broker and a franchise attorney to get your location legally. These professionals will surely determine the things you have overlooked when you are too preoccupied looking for the right site. Consulting them is crucial to assure triumph.
Choosing the location is a long process so must always have a flexible time frame. Deal with the realities with professional attitude and do your research in order to avoid surprises as a new franchisee.
Managing the Franchise Effectively
You have found the perfect site for the franchise, now you have to manage the business on your own way but still in accordance to the business strategy provided by the company. Remember that the key in running your business effectively is your employees.
- 1. Set the goals.
Goals are very important as they keep you in track towards success. They should be realistic and reachable to keep you grounded on your chosen industry. Creating and doing revisions are also essential for the development and growth of the business.
- 2. Get a loan.
Lending organisations and banks approve business loans with lesser interest rates. In order to get your loan endorsed, you must have a business plan and financial projections of the business for months to come. A financial help is essential to make your business dream come true.
- 3. Hire the best team.
Choose the people who are the best in the particular field and will be working hard for the success of the business. Training and mentoring them is important to enhance their creativity. Encouraging them to do their best is the very core of a booming business.
The franchise companies provide training and ongoing support to all their franchisees which could help develop managerial capabilities to draw more customers, build reputation and enhance the brand name.
How to Ensure its Success?
Franchising is an effective method in reaching more customers but there are factors to keep in mind to assure its success.
ü Keep an efficient relationship with the franchisor
A good relationship with the franchisor allows you to have unlimited support from the company to enhance the business. Make sure to maintain the connection professional as it is beneficial for the survival of the franchise.
ü Find the perfect location
As mentioned, you have to look for the best location to ensure the new unit’s success. Research about the desired location and identify if it is profitable. Many fail due to choosing the wrong site while others succeeded due to being at the right place.
ü Create a marketing strategy
Marketing is a vital part of any business as it is the tool to effectively offer the products or services to potential customers. Lack of advertising means trouble for the brand. Make sure to set budget for your marketing campaign.
ü Watch out your finances
Franchises most likely fail due to miscalculation of operating and start-up expenses. It is essential to develop a business plan to have projections of your expected expenses and profits.
ü Use your resources wisely
Franchise companies provide their franchisees complete resources in order to start the business. Franchiseworld.co.uk provides you with a list of the franchise advisers in UK. You just have to learn to manage them all in order to provide the best service or products to your customers. Remember that an excellent customer service means people will come back for more, and that is a key factor for the success of your franchise.
Franchising your company provides opportunities for countless wannabes to run and manage their business. This is a big step for the company as it gets in touch with more customers who are already familiar with the brand. For franchisee, this is a chance to represent a well-known company that could open many doors in the business world. Ensure franchising is right for your business, determine the pros and cons, identify your budget and lastly, develop a lasting relationship with the franchisor.