Franchisee – what is a franchisee? A complete guide
A franchisee is someone who purchases the right to use an already existing company’s brand name, trademarks, business model and proprietary knowledge from the franchisor. The franchisor owns the brand and sets the terms for licensing a franchisee to sell goods or services under the existing brand name.
In essence, the franchisee operates a business under the franchise’s brand. From the outside, it will appear the same as any other of the business’ units, but it is run by a separate franchisee. They have to follow guidelines set by the franchisor and, the majority of the time, the franchisee needs to pay an ongoing royalty fee to the franchisor.
Why should you become a franchisee?
Franchising is a great way for entrepreneurs who don’t have heaps of experience in a particular industry to run their own business, as they will receive ample guidance. The franchisor will already have established a successful business model and will probably have got any costly mistakes out of the way. This means franchisees can save time, money and effort, as they don’t have to build a business from scratch. The brand identity, product offering, marketing materials and customer base should already be in existence.
Franchisors can share their years of industry-specific and business-related expertise with franchisees, who should become highly skilled and knowledgeable businessowners in no time. In short, the franchise model allows franchisees to grow under an established brand and provides more security than going it alone.
What’s more, the franchisor will provide ongoing support in areas such as recruiting staff, setting up for launch day and marketing. Franchisees are also normally provided with an exclusive territory, where there are no other units of the same franchise in operation, so they aren’t in competition with a fellow franchisee.
To compensate for the franchisor’s expertise and support, franchisees must pay an initial franchise fee and ongoing royalties, which is usually a percentage of gross revenue. However, compared to starting a business from scratch, opening a franchise generally requires much less capital.
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Franchisee or Entrepreneur?
In order to fully understand what a franchisee is, it’s helpful to consider whether a person who buys into a franchise business can be described as an entrepreneur. According to franchise consultant Joel Libava, also known as ‘The Franchise King’, the person who created the franchise concept is the entrepreneur. To an extent, this can be accepted, in that franchisees essentially buy into the franchisor’s business system. However, franchisees are still responsible for the day-to-day running of the business and are responsible for a lot of the same elements as franchisors, as is outlined in the section below.
What does a franchisee do?
• Protects the brand. The business will only continue to be successful as long as it offers a consistent experience across its network. For this reason, the franchisor will have drafted a manual and list of operating standards, which you will be expected to adhere to. If you don’t, you’ll risk damaging the reputation of the entire franchise, and will be in breach of the franchise agreement. The franchisor may ask you to use designated suppliers and specific marketing materials, and report sales and expenses.
• Maintains quality control. Building on the previous point, you’ll need to ensure that the products or services you provide are up to scratch. If customers or clients notice that your offering is inferior to that of other franchisees in the network, your business is likely to suffer.
• Recruits and trains staff. Although the franchisor has authority over many of the aspects of your franchise unit, you’ll have to select your own workforce. It is in your interest to hire the best people you can find. Not only should they be able to do the job well, but they should also have a personality that matches the business’ values.
• Manages finances and accounts. This includes paying wages and bills. This is a big responsibility; if you forget to sort payroll, your staff may become frustrated, and if you make a mistake with your taxes, you risk facing significant consequences. It will be helpful if you are able to manage your own accounts, but if you don’t feel confident with this side of the business, you can enlist the help of a professional bookkeeping agency to make sure you keep on top of your finances.
• Builds a loyal customer base. If you’re lucky, your franchise brand will attract customers or clients from day one. If you open a Dunkin’ Donuts outlet, for example, it’s likely that locals will buy from you, as they’ll already be aware of the brand’s reputation. However, you may have to work hard to encourage repeat custom. You should endeavour to provide great customer service and listen to feedback to work out what your customers want.
• Promotes the franchise. Many franchisors ask for a regular marketing fee to finance national advertising campaigns, but they will also expect you to perform marketing activity on a local level. Of course, you’ll have to adhere to the franchisor’s strict guidelines when you do this, as you should be presenting the business in the right way, but you will probably have the freedom to decide what type of marketing you do. It could be attending local events, appearing on a local radio spot or offering discounts, freebies or tasters to passers-by.
• Supports the franchise’s growth. You should always be thinking about how you can develop the business. Reaching out to new territories, boosting your customer base and adding to your team can all have a positive effect on the business’ productivity and profitability. This will please your franchisor, and could increase your salary too. In short, be receptive to potential opportunities and keep an open mind. You’ll need to check over the franchise agreement to make sure you’re not breaching any terms and conditions but, in general, growth is positive.
What makes a franchisee successful?
If you take on all the responsibilities listed above, you’re likely to be a highly successful franchisee. In order to successfully run your very own franchise, you also need to be able to learn new skills and apply them to your franchise. As we’ve explained, you will take on a multitude of roles, from that of financial advisor, to trainer, to customer service assistant, so you should be prepared to absorb lots of new information and throw yourself into the role. The franchisor outlines the brand standards, but it is your responsibility to manage the day-to-day running of the franchise.
You should also be prepared to dedicate a large proportion of your time to your new business venture. It is true that, by joining the franchise system, you’ll save time you would have spent developing a business from scratch, but that doesn’t mean it’s an easy ride. You will still be a business owner, and that means a good deal of hard work and dedication. You must be ready to put in as much time and effort as it takes to make your unit profitable.
Talk to your family before signing up to a franchise agreement to make sure they understand what it will involve. It’s likely that you’ll have to sacrifice some family time, especially in the early stages. You may also find that the added stress of launching a franchise unit will take its toll on your relationships with family and friends. But, as long as you have a good support network around you, you should be able to come out the other end with a thriving business.
The Franchise Industry
According to The British Franchise Association-NatWest Franchise Survey 2018, the UK franchising sector is booming, with much of the recent growth being attributed to under-30s and female entrepreneurs. There are almost 50,000 franchises contributing over £17 billion to the British economy and providing over 710,000 jobs. In the last two years, 37 percent of all new franchisees were women and over 25 percent were aged 30 or under.
The expanding franchising industry has benefitted regional economies. Since 2015, there has been economic growth of 11 percent in Yorkshire (to £1 billion), 7 percent in the North East (to £800 million), 14 percent in the East Midlands (to £1.2 billion) and 18 percent in Wales (to £500 million).
Having looked at the benefits of becoming a franchisee and the UK franchising industry as a whole, it’s clear that there has never been a better time to follow your dream of becoming your own boss by starting a franchise. Head to our franchise directory today to learn about some of our most exciting brands looking for franchisees. You can also have a look at our best franchises and most profitable franchises too.
Alice Tuffery, Point Franchise ©
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