The three types of franchise system

29/05/2018 08:00 | Start a business

Three types of franchise system

Franchising is the perfect solution for many wannabe entrepreneurs who want to own their own business with the support of a well-established and recognisable brand. There are over 900 franchised brands currently operating in the UK, so there are plenty of opportunities for you to choose from. And with 97% being profitable franchises, it could be the ideal solution for you too.

When youve decided that franchising is definitely for you, youll need to give some consideration to the type of franchise system you want to be part of. There are generally three types of franchise which have an impact on your position in the business, how much involvement you have, and the amount of input the franchisor has in your franchise.

Heres some more information about the different types of franchise systems available for investment.

Business format franchise

This is the most common type of franchise system used in the UK and is what most people consider to be a typical franchise. In return for a fee, the franchisee of a business format franchise is granted the rights to use the brand name, trademarks and business processes. There are lots of rules, obligations and limitations set out in the franchise agreement which is a legal binding contract. The franchisor is heavily involved in how the franchise is run.

Although on the face of it, the business format franchise can appear restrictive, its one of the best franchises to own for inexperienced business owners. The franchisors business model has been tried and tested with a proven track record of success. The franchisee just needs to follow the franchise system, and theyll receive initial training and ongoing support to help them become a success.

The reason that people are so aware of business format franchises is that some of the most recognisable brands adhere to this type of franchising. Profitable franchises such as McDonalds, Subway, Costa Coffee, KFC and many more adopt this format. A simple way to tell if a franchise uses the popular business format is to assess the uniformity across multiple locations. The consistency of product and service is key to the success of business format franchises, so each location is expected to offer their customers the same level of quality. This builds brand trust which in turn creates repeat custom.

Management franchise

If you want to own a franchise but dont want to run the business with a hands-on approach, this could be one of the best franchises to own for you. Rather than franchisees being responsible for the day to day running of the business, they take a more managerial position. The only real requirement is for a management franchisee to have proven business-related skills, although this isnt always essential.

Just like a business format franchise, franchisees receive training, support and advice from the franchisor in return for fees. The only real difference is that franchisee focuses on developing and growing their business, rather than being involved in operational details.

If this sounds like the franchise for you, then you may want to look for re-sale franchise opportunities. This is where a franchisee has chosen to sell their franchise, but all the employees and business structure remain in place. Of course, you'll need to perform your due diligence to ensure that the franchise is profitable and sustainable before you buy. But if the franchise has been performing well there's no reason why you couldn't place a manager in charge of the franchise while you concentrate on the development side of things.

This management franchise system is probably more used than you realise. There are a whole host of franchise opportunities in different industries that allow you to take a step back from the day to day running of the business. Such franchises include Stagecoach, Autosmart and Wiltshire Farm Foods.

Product distribution

This is a much less common franchise system which consists of the franchisor providing products for the franchisee to sell on. As with any business model, product distribution has pros and cons. The most significant benefit is that the franchisee has fewer rules to adhere to and greater freedom to run their business their own way. Of course, there are still guidelines that need to be followed, but they're nowhere near as comprehensive as a business format or management franchise.

The main downside of product distribution is that franchisees receive no support or training from the franchisor. For this reason, the system may not work for a new franchisee but could be one of the best franchises to own if you want the flexibility to run your business your way but with the comfort of distributing products which are proven to sell with an existing customer base.

Which franchise system is right for you?

Profitable franchises can be found in all three of these systems, so the key to your success is to find the one that works best for you. Ask yourself these questions:

  • Do you want standardised systems and procedures, or do you want to control the way your business is run?
  • Are you able to adhere to strict rule and standards or do you have more of an entrepreneurial spirit?
  • Do you want access to a prescribed product offering or do you want to sell what you choose?
  • Are you willing to invest in marketing your business effectively or do you want support with promotional activity?
  • Do you require training to enable you to run your business effectively or do you have all the necessary expertise?
  • Do you want a safety net of ongoing support when running your business or are you happy to learn from your mistakes along the way?

The answers to these questions should give you an idea of which system best suits your personality and experience; if indeed franchising is right for you at all. Remember that whatever decision you make, you must be confident that it's the right choice for you as a franchise agreement is legally binding and much easier to get into than out of.

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