Franchising 101: The basics

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Franchising 101: The basics

If you've always dreamed of starting your own business, the thought of starting a franchise may already have crossed your mind. After all, famous franchises are around us every day, and it's pretty difficult not to find the prospect of running a successful business with the support of a reputable and well-established brand very appealing.

But is franchising right for you? What are the advantages and disadvantages of franchising? And how do you identify the most successful franchises from the bad ones? To help you answer these questions, here is everything you ever needed to know about franchising – well almost!

Is the franchise model right for you?

It takes a particular type of person to run a successful franchise. And while this type of business model isn’t for everyone, if you possess any of the following attributes, you might make a good franchisee.

  • You like following rules – One of the most crucial elements of the franchise model is the franchisee’s ability to stick to the strict regulations set out in the franchise agreement. This doesn't mean you can't be innovative as a franchisee, but you should understand that, ultimately, the franchisor has control of the business and makes most of the critical decisions. If you've got a strong entrepreneurial spirit and don’t like following the rules, franchising may not be the best route to business ownership for you.
  • You like security – Of course, there is an element of risk with every business and buying a franchise is certainly no guarantee of success – but it does offer a safety net. Investing in a proven business model with tried and tested strategies mitigates many of the risks that are associated with starting a business. If you crave this security, franchising could offer you the perfect opportunity to become a business owner.
  • You’re hardworking – There is a common misconception that running a franchise is much easier than owning an independent business. Of course, as a franchisee, you do get support and training from the franchisor, but business success doesn’t come about by chance. It takes hard work, dedication and motivation to run a profitable business, whether it's a franchise or independent business. It’s also likely that you’ll have to put in extra hours when you first start your unit. This might mean working in the evenings and during weekends, so you should make sure your family are supportive of your decision before you sign on the dotted line.

  • You can afford to fund your new business – There’s no getting away from the fact that there are quite a few upfront costs to be paid when you purchase a franchise business unit. The franchisor wouldn’t be prepared to give away the secret to their successful business model if they didn’t get something in return. The initial franchise fee covers elements such as the cost of your recruitment and training, and ongoing costs are charged to fund the continued support you receive as a franchisee. Before you even start to consider franchising, you should ensure you have adequate financial resources to cover these costs and fees. Your budget doesn’t have to be entirely made up of your own cash, though. Because many banks recognise the relative security of franchise models, they are prepared to offer franchisees up to 70 percent of the investment cost – subject to a satisfactory business plan.

If you think you’ve got the traits required to be a successful franchisee, you’ll probably want to know more about operating a franchise business…

What are the pros and cons of buying a franchise?

Pros

  • When you open a franchise unit, you’ll probably benefit from some level of brand awareness. This will give you access to a ready-made customer base – especially if you buy into a recognisable brand.
  • The business model will have already been developed and perfected by the franchisor. This means you’ll be able to get your unit up and running much quicker than if you were to start an independent business from scratch. You’ll also be able to avoid making many of the costly mistakes that independent business owners often do, as they’ll have already been made by the franchisor years before.
  • If you’re new to business ownership, the support of the franchisor and the training provided will be invaluable. Starting a new venture is far less stressful when there’s no need to learn through trial and error. Most franchisors provide an extensive training programme for new franchisees to make sure they’re accustomed not only to the industry, but to the specific business’ practices as well. What’s more, you’ll benefit from ongoing support throughout the term of your contract. This means you should be able to access further learning materials and approach the franchisor with any concerns or issues you face.

Cons

  • You’ll probably have to spend more in start-up costs than you would were you starting an independent business. Also, the proven business model, continued support and national marketing activity you benefit from as a franchisee comes at a cost. You’ll have to pay ongoing fees and royalties, which can lower your profit margin and drag out the journey to breaking even. Ultimately, franchising is great for entrepreneurs who are willing to pay for extensive training and a higher level of security.
  • The franchisor has ultimate control over the entire franchise. When you come on board, they will have already developed detailed plans for everything from business operations to site décor and customer interaction guidelines. Franchisees must accept that they’ll have no say in this whatsoever, as a lack of consistency across franchise units can spell disaster for the business as a whole. By forgetting or refusing to adhere to even a small element of the business plan risks the reputation of the entire brand, so franchisees must be sure they’re happy to follow instructions closely.

You need to weigh up whether being a franchisee is right for you, taking into account all the pros and cons. If you feel the advantages outweigh the disadvantages, you should start looking for a franchise to invest in. So, we move onto the next question: How can I be sure I’m choosing one of the most successful franchises?

The good, the bad and the ugly

The British Franchise Association (BFA) is the self-regulatory body for the franchise industry in the UK. It has made considerable steps to improve standards in the franchise sector and encourage ethical business practices. However, it would be naïve to think that there are no bad franchisors out there.

We want to make sure you don’t jeopardise your dreams of becoming a successful franchisee and lose your franchise investment by investing in the wrong franchise. Here are some tips to help you identify a bad franchise:

  • A high-pressure sales pitch – If the franchisor tries to force you into making a quick decision or attempts to encourage you to sign the franchise agreement by setting time limits or introducing discounts, you should walk away. They’re probably concerned you’ll find out something negative about the business and dismiss it. While you’ll want to make the right decision, it should be in the interests of the franchisor to ensure you’re well-suited to the business too. For this reason, they should never pressure you into signing before you’re ready, as it could end in disaster for both you and the franchise.
  • A damaged reputation – In this digital age, it’s easier than ever to do some quick research online to find out more about a franchise. If you discover some issues with either the business or the franchisor, take them as a warning sign. Pay particular attention to any problems that you perceive to be unresolved, as they could spell bad news for you. You should also try to find out about the business’ franchisee turnover rate. If investors tend to leave before their contract term is up, there’s probably an issue with the franchise or the way it treats its franchisees.

  • Inadequate training – One of the key benefits of buying a franchise is the training programme provided by the franchisor. While carrying out research, you should try to get an idea of the amount of training and support you would get as a franchisee. Even if you have extensive experience as a business owner or as a worker in the industry, you should still be on the lookout for good franchisor support, as you’ll need to know the intricacies of the business you’re joining in order to confidently develop a profitable business.

Franchising can offer you the freedom and flexibility of being a business owner with a lower level of risk. If you’ve got the right attributes to become a franchisee, you’re off to a great start. But you should also be sure you want to invest in a franchise model and be prepared to do extensive research to find the right one for you. Once you’ve done this, you’ve got a great chance of becoming a happy and profitable franchisee.

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