HOW FRANCHISING CAN AID YOUR BUSINESS GROWTH
One of the most readily available ways of starting your own business is to buy a franchise. Compared to other forms of start-up, this is often a relatively risk-free method of getting established in business, because the development of the product or service has already been done for you by the source company (franchisor).
One of the most important things for many people is that franchising give them an opportunity to become their own boss within the protective framework of a larger organization with a successful formula. When you buy a franchise, however, you should understand that your success or failure in the enterprise will be largely down to your own hard work and the business skills you learn. It shouldn’t be seen as an easy option, because to become successful, the operation of a franchise requires as much dedication and effort as any other kind of business.
Franchising offers both advantages and disadvantages over other types of businesses, and there are some basic steps that should be followed in setting up in this way.
FREQUENTLY ASKED QUESTIONS
What Is A Franchise?
A franchise is basically an agreement between one business (the franchisor) and yourself (the franchisee) that enables you to use the trade name and trademark, and supply the branded services or products, of the franchisor.
You pay a fee in return for the granting of a franchise license and you have to comply with the terms and conditions set by the franchisor in an agreement. Typical franchise sectors are fast-food chain, fitness centres, grocery, and convenience stores.
What should I look for in good franchise?
Perhaps the most important thing a good franchise opportunity should offer you is a product or service with a proven track record. You should, ideally, gain access to a recognized brand name. All the research and development effort on the service or product should have been conducted by the franchisor, who will also be responsible for maintaining standards and guaranteeing quality control. Other benefits should include access to help, advice, and training, as well as participation in marketing and advertising activities that would be beyond your reach as a small business.
What is a franchise network?
This is an association of independently owned businesses selling a variety of products or services developed by an umbrella organization. They are linked together by the common brand identities and the support activities they share, such as marketing, advertising, and training.
What are the disadvantages of franchising?
There are certain things over which you may have no control as a franchisee. For example, you are unlikely to have any decisive say over the development and introduction of new products or services. The franchise agreement will normally require you to contribute to expenditure (up to an agreed amount) on marketing and advertising campaigns on behalf of the franchise network, and you may have little or no opportunity to influence the way that this is done.
Furthermore, the appointment of other franchisees to the network, who you may feel are unsuitable or less competent than you, will be beyond your control (though the franchise agreement should give you exclusive rights over a defined geographical area). Any damage done to the reputation of the network could impact adversely on your business.
What costs should I expect?
Before you begin trading, you’ll have to pay a fee to the franchisor for granting the initial license. This will normally be followed by an annual premium, called management services fee, which is likely to be based on a percentage of your annual turnover. You’ll be responsible for the professional fees of lawyers, accountants, and business consultants you appoint for negotiating the franchise agreement and setting up your enterprise.
The normal overhead of your business will include such things as buying supplies and materials; staff wages; taxes and VAT; rent; rates; and maintenance of machinery and property; vehicle running costs; and any advertising and promotional material you produce under your own steam.
MAKING IT HAPPEN
Look For A Suitable Franchise
You should look for a franchise package that will include all the things necessary to enable you successfully to operate an outlet of an established business. This includes, first and foremost, a commercially viable product or service. Your franchisor should offer you a discount on bulk supplies of products and be able to help you find start-up capital (most established franchisors have special arrangements with the banks to help new franchisees) and suitable premises.
To enable you fully operational, – even if you are a novice at the business – you should be offered adequate initial training after which you should have a program of courses and seminars to continue your development and keep you abreast of changes affecting your sector. As well as giving you help and advice, your franchisor should encourage you to meet other franchisees in the network who will be able to pass on useful insights and tips about the best way to manage your business.
Choose a Franchise That Best Suits Your Needs
While you may have the dedication and commitment required to run a franchise, you should nevertheless choose one that most closely matches your aspirations and capabilities. There are events and services available that will make you make the right decision.
You should start by attending a franchise exhibition where you’ll be able to compare and contrast different types of opportunities. Consultants attached to reputable organizations can help you to make the right choice.
Conduct Some Basic Checks
Before you make your final decision about the franchise to go with, you should check out certain information. This will include examining:
- Financial projections for your proposed outlet;
- Proof that the franchised product or service is viable and can be traded profitably;
- A list of existing franchisees in the network and their trading performance;
- What training will be available to help you establish your outlet;
- Evidence that the proposed franchise will protect your rights.
Particular care should be taken about joining a network that has no proven track record. However, organizations that are members of the BFA must follow certain rules, which include disclosing the information listed above.
Think About the Franchise Agreement
This is a legally binding agreement between you and the franchisor. While you may be able to negotiate various aspects of the agreement, there are no hard and fast rules about what it should contain. However, it must comply with the Federal Trade Commission and individual trade regulations.
When evaluating the agreement, you should consider the following key issues:
- The rights granted to you and the franchisor
- Your obligations and those of the franchisor
- The goods and services provided to you and the franchisor
- The terms and amount of your payment for licenses, management fees, and other costs imposed by the franchisor
- The duration of your agreement
- The basis for any renewal of your agreement
- The terms by which you may sell or otherwise transfer your interest in your franchise
- The terms by which you may use the franchisor’s trade names, brand names, logo, store signs, and service marks
- The franchisor’s right to adapt their franchise system to meet new or changed method and market conditions
- Your rights to terminate a franchise agreement before it expires
- The ownership of property, both tangible and intangible, provided to you by the franchisor and provisions for its surrender when an agreement is terminated
WHAT TO AVOID
Running a franchise involves a huge amount of time, effort and money. Make sure before you take the plunge that you are prepared to commit what it will take to make the business a success. Talk to other franchisees to get a realistic idea of just how great the commitment must be.
Falling for the “Hard Sell”
Don’t be taken in by promises and the sales pitch from some organizations that may attend franchise exhibitions. If you find what appears to be a promising opportunity at the exhibition before you sign anything to take your time to think through carefully the proposals put to you. A reputable franchisor will encourage you to reflect before you commit yourself.
Signing Up to a Bad Agreement
Be wary of generalizations in any franchise agreement. Make sure the terms apply specifically to you and your franchise, and that the details cover your peculiar requirements.
Another thing to avoid is signing up to an agreement that does not last long enough to enable to make a decent return on your investment. You should get a lawyer experienced in this area of commercial law to check the agreement before you sign; this is an added expense but it could save you a great deal in the longer term.
Setting Up Too Close to an Existing Franchise
While your franchisor should make sure that you don’t set up your business too close to other franchisees in the same network, check that there are no similar outlets operated by other organizations. This can happen in some areas of retailing and food catering, for example, and if you are not careful you could end up with the unnecessary competition.