The three types of franchise system

30/03/2019 18:00 | Start a business

Three types of franchise system

Originally posted on 29/05/2018. Updated on 30/03/2019.

Franchising is the perfect solution for savvy entrepreneurs with a desire to own their own business under the support of a well-established and recognisable brand. With the current climate, the franchise industry has never been more prosperous. The UK economy has continued to grow despite economic challenges like rising inflation, a weaker pound and Brexit. According to the British Franchise Association (BFA), in 2018, there were 48,600 franchise units in the UK, creating 710,000 jobs and contributing more than £17.2 billion to the economy.

If youve decided that franchising is definitely for you, youll need to give some thought to the type of franchise system you want to be part of. There are generally three types of franchise which all impact differently 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 adopted 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 is a myriad of rules, obligations and limitations set out in the legally binding franchise agreement. And the franchisor is heavily involved in how the franchise is run.

Although on a surface level 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. Therefore, all the franchisee needs to do is follow the franchise system and they can acquire expertise and security through initial training and ongoing support.

The reason that there is such an awareness of business format franchises is because some of the most recognisable brands adhere to this type of franchising. Iconic, profitable franchises such as McDonalds, Subway, Costa Coffee, KFC and many more adopt this format. A typical tell-tale sign of a franchise adopting 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, initiates and maintains 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 more of a managerial role. It is advantageous for a management franchisee to have proven business-related skills, but it 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 the franchisee focuses on the growth and the development of the business, rather than being heavily involved in the operational running.

If this sounds like the franchise for you, then you may wish to look for re-sale franchise opportunities. This is where a franchisee has chosen to sell their franchise, but all the employees and the business structure remains in place. That being said, you'll need to perform your due diligence to ensure that the franchise is profitable and sustainable before jumping straight in. But if the franchise has been performing well, there's no reason why you cant designate a manager to be in charge of the franchise while you focus on brand development.

The management franchise system is probably adopted more frequently that you realise. There are a whole host of franchise opportunities in various 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 that consists of the franchisor providing products for the franchisee to sell on. As with any business model, product distribution has its pros and cons. The most significant benefit is that the franchisee has fewer rules to follow and greater freedom to run their business how they wish. Of course, there are still some guidelines that must be adhered to, but they're nowhere near as comprehensive as a business format or management franchise.

The main downside of product distribution is that franchisees dont receive any support or training from the franchisor. Therefore, the system may not work for a new, inexperienced franchisee, but could be one of the most rewarding franchises to own if desire 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?

Lucrative franchises can be found in all three of these systems, so the key to success is to find the best one for you. Consider the following:

  • 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 rules 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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